Working Paper: CEPR ID: DP17678
Authors: Florian Mayneris
Abstract: I find that on average, the firm-level labor share increases with local employment density, but this relationship is highly heterogeneous across industries.Through the lens of a theoretical framework featuring a CES production function, I show that this heterogeneity arises because both the density-elasticity of the relative cost of labor (adjusted for productivity) and the elasticity of substitution between capital and labor vary across industries. The magnitude of the effects I find implies that in industries where the density-elasticity of the firm-level labor share is non-null, agglomeration economies are capital-biased. Moreover, all else equal, industries where the labor share increases with density are less likely to locate in denser areas.
Keywords: agglomeration economies; firm-level labor share; firms location decisions
JEL Codes: R10; R12; R32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| density elasticity of the firm-level labor share (J39) | agglomeration economies (R11) |
| market power, competition in labor markets, educational background of workers (J29) | firm-level labor share (J39) |
| local employment density (R23) | firm-level labor share (J39) |
| historical urban population density (N93) | local employment density (R23) |