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The Volatility Advantages of Large Labor Markets

Author

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  • Conte, Maddalena
  • Mejean, Isabelle
  • Michalski, Tomasz K.
  • Schmutz, Benoit

Abstract

Firms' labor demand is more volatile in larger cities. We propose and test a novel explanation for this finding. Faster hiring conditions attract productive firms with more volatile activity to denser locations where they can swiftly downsize or expand. We estimate a model of firm location choice using French data and show that (i) firm volatility is almost as predictive of location choice as productivity; (ii) both dimensions reinforce each other. This mechanism reduces the productivity-density gradient among volatile firms. Imperfectly correlated firm-level shocks, combined with higher operating costs induced by density, generate matching economies.

Suggested Citation

  • Conte, Maddalena & Mejean, Isabelle & Michalski, Tomasz K. & Schmutz, Benoit, 2024. "The Volatility Advantages of Large Labor Markets," CEPR Discussion Papers 18925, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18925
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    More about this item

    Keywords

    Agglomeration economies; Volatility; Firm location;
    All these keywords.

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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