Labor Market Pooling Research Articles

Local labor market and corporate investment

To capture local labor market pooling in agglomeration economics, we employ segment information and occupation statistics to construct firm-pair labor force similarities. Our findings indicate a positive relation between local labor market thickness and corporate investment, influenced by both employer-driven labor demand and employee-driven labor supply. The findings are more pronounced in firms with more skilled labor, less routine-task labor, and higher product and technology competitions. Firms in thicker local labor markets also display higher investment efficiency, higher operating efficiency, and higher valuation. To mitigate the endogeneity concern, we employ an instrumental variable approach to show robustness. Overall, we uncover a specific linkage between the local labor market and corporate investment.

Local labor market and the cross section of stock returns

Local labor market pooling is a crucial benefit in the economics of agglomeration (Marshall, 1890). To capture the pooling function, we employ segment information and occupation statistics to capture average pairwise labor force similarities for each focal firm. We find that firms in thicker local labor markets are underpriced and display significantly positive stock returns afterwards. The return predictability of local labor market measure is concentrated in non-mega cap firms; high-tech firms; younger firms; and firms with more high-skilled labor, less routine tasks, and lower labor intensity. Our results are robust to a battery of control variables and alternative measure specifications.

Attenuation of agglomeration economies: Evidence from the universe of Chinese manufacturing firms

This paper quantifies industry-specific spatial attenuation of agglomeration economies by taking advantage of unique geocoded administrative data on the universe of Chinese manufacturing firms. The estimates of industry-level attenuation speed further allow us to systematically assess the goodness of fit of various spatial decay functional forms and to evaluate the micro-foundations that govern the decay patterns across industries. We obtain three main findings. First, agglomeration spillovers attenuate by about 90 percent on average from 0–1 km to 1–5 km in China, with large heterogeneity in the extent of attenuation ranging from 73 percent to 116 percent across industries. Second, the spatial decay speed is positively linked with proxies for knowledge spillovers and labor market pooling but is negatively linked with proxies for input sharing and the share of the state sector. Last, the inverse square distance decay function presents the best goodness of fit among the tested functional forms.

The dynamics of industry agglomeration: Evidence from 44 years of coagglomeration patterns

Evidence abounds that agglomeration patterns have changed over time, but little is known about changes in the underlying determinants of agglomeration. We analyze 44 years of coagglomeration patterns of U.S. manufacturing industries and show that over time, input-output linkages and labor market pooling have become less important determinants of industry agglomeration, while knowledge spillovers have become more important. We show that trade and technology shocks are strongly associated with the decline in labor market pooling and the increase in knowledge spillovers. The downward trend in input-output linkages is associated with an increase in trade competition but not with a decrease in the transportation costs of goods.

Firm heterogeneity in industrial clustering of Indian manufacturing industries

ABSTRACT This investigation explores the micro-heterogeneity of industrial clustering of registered Indian manufacturing firms and examines the roles of Marshallian agglomeration and localization economies and location-specific policy incentives. The empirical results suggest that of localization economies, only inter-industry buyer–supplier relationships and labour market pooling play significant roles in industrial clustering. Location-specific incentives such as the designation of special economic zones have a positive effect on the co-agglomeration of industries, whereas location-specific tax incentives do not have such an effect, except in the cases of new entrants.

Spatial wage differentials and agglomeration externalities: Evidence from Indonesian microdata

This paper examines the sources of labor wage differentials and investigates human capital externalities across Indonesian districts. Based on microdata on individual workers from 2006 to 2015, we show that, in addition to individual (labor) characteristics, regional endowments and agglomeration forces play an important role in explaining wage variations across Indonesia districts. The role of agglomeration forces in wage variations results from the spatial proximity of firms to each other, labor market pooling, and knowledge spillovers. We further found strong evidence of positive human capital externalities, particularly in agglomerated regions. These findings suggest that skills and agglomeration are important tools that can be exploited by policymakers to boost local productivity vis-à-vis reducing income/wage inequality.

Does high-speed railway strengthen the ties among nearby regions? Evidence from China

Abstract The High-Speed Railway (HSR) has been widely rolled out in China. It has redefined inter-region connections by greatly reducing the travel time. Using data for China's 288 prefectures from 2003 to 2018, this paper examines the impacts of China's HSR system on Marshall's three micro foundations of agglomeration – labor market pooling, input sharing and knowledge spillover. The baseline model adopts a staggered difference-in-difference approach. In order to test the validity of the parallel assumption and deal with the sequential timing of HSR construction, this article conducted an event-study analysis, which compares the growth trends pre- and post- HSR operation. Finally, a propensity score analysis is conducted to reduce the concern about the endogeneity of route placement. Results show that HSR has increased passenger traffic by train and invention-type patent filings. However, the HSR has reduced rail freight shipping, which suggests a potential crowding-out effect of HSR constructions.

Determinants of entry: Evidence from new manufacturing firms in the U.S

AbstractThe objective of this paper is to estimate the relationship between agglomeration economies and the birth of new firms in U.S. manufacturing sectors during 2004–2012. I examine the variations in Marshallian factors across MSAs and across counties within MSAs. My findings support the existence of Marshallian agglomeration forces: input sharing, labor market pooling, and knowledge spillovers, with input–output linkages particularly important. I then examine the variations in Marshallian factors across regions and find regional differences are not very strong. In addition, large‐sized firms appear to be more responsive to a supplier‐customer relationship. Moreover, my empirical results provide evidence that firms in highly concentrated industries react more to input linkage and labor pooling.

Do rural migrants benefit from labor market agglomeration economies? Evidence from Chinese cities

AbstractWe combine the 2005 China Inter‐Census Population Survey data and the 2004 China Manufacturing Census to test whether workers, particularly rural migrants, benefit from labor market Marshallian externalities. We find that workers in general, and rural migrants in particular, benefit from labor market pooling effects (measured by total employment in a city‐industry cell) and human capital externalities (measured by share of workers with a college degree or above in a city‐industry cell). These findings are robust to various sorting bias tests. However, rural migrants benefit much less than do local or urban workers, possibly because rural migrants lack social networks and are discriminated doubly in terms of being both “rural” and “migrants.” Our findings have policy implications on how Chinese cities can become skilled during the rapid urbanization process coupled with global competition.

Attenuation of Agglomeration Economies: Evidence from the Universe of Chinese Manufacturing Firms

This paper examines the industry-specific attenuation speed of agglomeration economies and its interplay with the large presence of state-owned enterprises in China. We achieve this focus by taking advantage of unique geo-coded administrative data on the universe of Chinese manufacturing firms. The full-spectrum analysis also allows us to assess the goodness of fit of various spatial decay functional forms and to systematically evaluate the micro-foundations that govern the decay patterns across industry types. We obtain three main findings. First, agglomeration economies attenuate sharply with spatial distance in China, with large heterogeneity in the attenuation speed across ownership and industry types. Second, the spatial decay speed is positively linked with proxies for knowledge spillovers and labor market pooling but negatively linked with proxies for input sharing and the share of the state sector. Last, the inverse square distance decay function presents the best goodness of fit among the tested functional forms.

Exports of firms and diversity: an empirical assessment for Germany

The international trade literature highlights the importance of firm productivity and economies of scale on the firm’s international export success. In the context of agglomeration economies, firms enjoy productivity gains when they are located close to related firms and they gain from knowledge spillovers and other positive externalities. They may also benefit from a potentially large supply of diverse workers that possess distinct knowledge and problem-solving skills. In such environments, firms may be more prone to export. In this paper, we employ a comprehensive German data set that combines survey and administrative data. We ask whether German firms (i.e., establishments) export more as a result of localization and urbanization externalities, and labor market pooling associated with workforce diversity, while controlling for a variety of establishment characteristics. Using a fractional response model, we provide evidence that manufacturers and smaller establishments benefit more from externalities and especially from knowledge spillovers. There is less evidence supporting the benefit of workforce diversity; however, that factor may be associated with between-establishment variation.

The Economies and Diseconomies of Industrial Clustering: Multinational Enterprises versus Uninational Enterprises

This study’s objective is to compare cluster economies and diseconomies for multinational enterprises (MNEs) and uninational enterprises (UNEs) within the London financial services cluster. In contrast to the implicit assumption of the cluster participation literature that the economies and diseconomies of clusters are valued similarly by all firms, we find that economies relating to social capital and labour market pooling are equally important to MNEs and UNEs, economies relating to local competition and diseconomies relating to congestion costs are more important to MNEs than to UNEs, and economies relating to the reputational effects of locating in a world-leading cluster and access to specialised suppliers are more important to UNEs than to MNEs. That MNEs and UNEs do not experience cluster economies and diseconomies in the same way indicates that both cluster participation theory and international business theory need augmentation to recognise that cluster incumbents benefit and suffer from cluster membership differently.

DETERMINANTS OF AGGLOMERATION IN KOREAN MANUFACTURING INDUSTRIES

Despite accumulated findings on the effects of agglomeration on productivity of manufacturing industries in Korea, little is known about the determinants of agglomeration. Employing an approach similar to Rosenthal and Strange ( 2001 ) [Rosenthal, S and W Strange (2001). The determinants of agglomeration. Journal of Urban Economics, 50(2), 191–229.], but using a different agglomeration index, this study examines whether the three microfoundations of agglomeration economies are important to the geographical concentration of Korean manufacturing industries. While estimation results generally confirm that labor market pooling, input sharing and knowledge spillovers contribute to agglomeration, we found some differences with the previous literature. First, non-manufactured inputs are more influential on agglomeration than manufactured inputs. Secondly, aggregate innovation activities, rather than their share of shipments, are a better measure of knowledge spillovers to explain agglomeration. Thirdly, agglomeration of newly established firms is also influenced by the Marshallian externalities with labor market pooling having a stronger and consistent effect. These results are robust to instrumental variables estimation to control for endogeneity related to knowledge spillovers and labor market pooling.

The Impact of Clustering on Firm Innovation

Are firms in clusters more innovative and productive than firms operating in more isolated areas? This article combines two rich firm-level data sets to analyze the effect of a dense geographical concentration of industries on the innovativeness and productivity of firms. The results show that increased concentration of employment in the same industry (localization) is associated with higher innovation output and higher productivity. At the same time, however, a higher number of firms in the same industry are associated with lower innovation output and lower productivity. These two findings are visible within a distance of 500 m away from the respective firms, but then vanish for longer distances. Furthermore, the article finds no evidence that increased concentration of employment in other industries (urbanization) is positively related to higher innovation output. In contrast, increased concentration of employment in other industries is strongly related to higher productivity, whereby this effect extends to large distances of up to 10 km. The results of the article thus suggest that those agglomeration externalities operating over longer distances, such as labor market pooling, work mostly across industries, while the comparatively more local knowledge spillovers tend to work mostly within industries. (JEL codes: O33, R3)

Labor pooling as an agglomeration factor: Evidence from the Brazilian Northeast in the 2002–2014 period

Abstract This is a pioneering study of Brazil of the importance of labor pooling to explain industrial agglomeration in the Northeast of Brazil, employing firm-level microdata. We applied the theoretical model proposed by Krugman (1991) (labor market pooling model) with the adaptations by Overman and Puga (2010) to examine how firms react to shocks in the labor market that influence their productivity. For this purpose, we applied regression models in which we regressed the Ellison and Glaeser (1997) index as a function of a proxy for labor pooling, to capture exogenous shocks in the labor market while controlling for observed sector characteristics that vary in time and sector fixed effects. The results are consistent with a reduction in the level of industrial concentration in the period from 2002 to 2014. For labor pooling, as predicted, the role of the labor pooling variable is positive and significant.Thus, industries where, on average, plants face more idiosyncratic shocks relative to their industry are more spatially concentrated.

Do Rural Migrants Benefit from Labor Market Agglomeration Economies? Evidence from Chinese Cities

We combine the 2005 China Inter-Census Population Survey data and the 2004 China Manufacturing Census to test whether workers, particularly rural migrants, benefit from labor market Marshallian externalities. We find that workers in general, and rural migrants in particular, benefit from labor market pooling effect (measured by total employment in a city-industry cell) and human capital externalities (measured by share of workers with a college degree or above in a city-industry cell). These findings are robust to various sorting bias tests. However, rural migrants benefit much less than do local or urban workers, possibly because rural migrants lack social networks and are discriminated doubly in terms of being both “rural” and “migrants.” Our findings have policy implications on how Chinese cities can become skilled during the rapid urbanization process coupled with global competition.

Big Plant Closures and Agglomeration Economies

This paper analyses the effects of large manufacturing plant closures on local employment. Specifically, we estimate the net employment effects of the closure of 45 large manufacturing plants in Spain, which relocated abroad between 2001 and 2006. We run differences-in-differences specifications in which locations that experience a closure are matched to locations with similar pre-treatment employment levels and trends. The results show that when a plant closes, for each job directly lost in the plant closure, between 0.3 and 0.6 jobs are actually lost in the local economy. The adjustment is concentrated in incumbent firms in the industry that suffered the closure, providing indirect evidence of labor market pooling effects. We find no employment effects in the rest of manufacturing industries or in the services sectors. These findings suggest that traditional input-output analyses tend to overstate the net employment losses of large plant closures.

Do Urban Social Enterprises Benefit from Agglomeration? Evidence from Four UK Cities

Pinch S. and Sunley P. Do urban social enterprises benefit from agglomeration? Evidence from four UK cities, Regional Studies. This paper examines the relevance of clustering theory for an understanding of the location of social enterprises (SEs). This is accomplished through an analysis of the extent to which managers of SEs in four major UK cities perceive themselves to benefit from agglomeration effects. The paper concentrates on two broad sets of agglomeration processes: the first is Marshallian externalities and Porter's cluster processes; and the second set includes urbanization economies and local institutional relationships. The study suggests the key benefits of agglomeration to SEs are that it enables access to demand for SE goods and services together with institutional support, funding and commercial contracts, as well as access to both formal and informal networks that can provide a wide range of knowledge and mutual support. It was, however, difficult to find direct evidence to support the importance of the Marshall–Arrow–Romer (MAR)-type spillovers related to labour market pooling, the efficient procurement of indirect inputs or localized knowledge spillovers.

Determinants of Urbanization

In light of the United Nations' (UN) latest urbanization projections, particularly with respect to India and the People's Republic of China, a good understanding is needed of what drives aggregate urbanization trends. Yet, previous literature has largely neglected the issue in favor of studying urban concentration. Taking advantage of the latest UN World Urbanization Prospects, we use an instrumental variables approach to identify and analyze key urbanization determinants. We estimate the impact of gross domestic product (GDP) growth on urbanization to be large and positive. In answer to Henderson's (2003) finding that urbanization does not seem to cause growth, we argue that the direction of causality runs from growth to urbanization. We also find positive and significant effects of industrialization and education on urbanization, consistent with the existence of localization economies and labor market pooling.

The impact of spatial concentration on enterprise performance

The objective of this paper is to reveal the impact of spatial concentration of business in the Russian cities on enterprise productivity. The hypotheses are the following: urbanization level and home market potential positively affect enterprise performance; localization economies are positive and start decreasing after some point due to congestion and excessive competition; regional transport infrastructure, business climate and human capital positively affect enterprise performance. We use firm level data augmented with city and regional data. Fixed effects are applied in order to deal with endogeneity. Agglomeration economies are considered in the light of opportunities for knowledge spillovers, input sharing and labor market pooling. Our results confirm that agglomeration economies and home market potential are important for the enterprise performance. We find positive urbanization and diversity economies, while localization economies have an inverted U shape. Results can be used to improve regional policy. For instance, significance of home market potential emphasizes the importance of transport infrastructure. Significance of agglomeration effects implies that if a sufficiently large number of firms work in a city, performance of each firm improves.