Labour Pooling as a Source of Agglomeration: An Empirical Investigation

Abstract: We provide empirical evidence on the role of labour market pooling in determining the spatial concentration of uk manufacturing establishments. This role arises because large concentrations of employ-ment iron out idiosyncratic shocks and improve establishments ’ ability to adapt their employment to good and bad times. We measure the likely importance of labour pooling by calculating the fluctuations in employment of individual establishments relative to their sector and averaging by sector. Our results show that sectors whose establishments experience more idiosyncratic volatility are more spatially concentrated, even after controlling for a range of other industry characteristics that include a novel measure of the importance of localized intermediate suppliers. Key words: labour market pooling, spatial concentration. jel classification: r30, r12 ∗Thanks to Edward Glaeser and seminar participants at the nber Urban Economics Meeting in March 2007 fo