Agglomeration economies and firm-level labor misallocation. (23rd March 2018)

• Record Type: Journal Article
• Authors: Fontagné, Lionel; Santoni, Gianluca
• Is Part Of: Journal of economic geography. Volume 19:Number 1(2019)
• Page Start: 251
• Page End: 272
• Publication Date: 2018-03-23
• Subjects: Misallocation -- agglomeration -- productivity -- firm-level data; D24 -- R12 -- L25 -- O47; Economic geography -- Periodicals; 330.9
• DOI: 10.1093/jeg/lby007
• Languages: English
• ISSNs: 1468-2702

Abstract

Abstract: A large portion of the productivity differentials among locations is related to density. Firms located in denser areas are more productive (Combes et al., 2012a, Econometrica, 80: 2543–2594). We show in this article that resource misallocation is lower in denser areas and argue that misallocation plays an important role in explaining the observed productivity premium of large cities. Using a methodology proposed byPetrin and Sivadasan (2013, Review of Economics and Statistics, 95: 286–301), we firstly assess the degree of resource misallocation among firms within sectors for each of the 348 French Employment Areas ( commuting zones ). Based on firm-level productivity estimates, we identify in the gap between the values of the marginal product and marginal input price the degree of input allocation at the firm level. Over the whole period 1994–2007, the average gap at firm level is 9.5 thousand euros. Secondly, we show that firm misallocation is lower in denser employment zones, suggesting that matching mechanisms on the labor market contribute to the productivity premium of agglomerated locations.