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Agglomeration economies and firm-level labor misallocation

Author

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  • Lionel Fontagné

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CEPII - Centre d'études prospectives et d'informations internationales)

  • Gianluca Santoni

    (CEPII - Centre d'études prospectives et d'informations internationales)

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). 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 by Petrin and Sivadasan (2013, Review of Economics and Statistics), 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.

Suggested Citation

  • Lionel Fontagné & Gianluca Santoni, 2019. "Agglomeration economies and firm-level labor misallocation," PSE-Ecole d'économie de Paris (Postprint) hal-02003078, HAL.
    • Handle: RePEc:hal:pseptp:hal-02003078
    DOI: 10.1093/jeg/lby007
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    4. Lionel Fontagné & Ann Harrison, 2017. "The Factory-Free Economy. Outsourcing, Servitization, and the Future of Industry," PSE-Ecole d'économie de Paris (Postprint) halshs-02923043, HAL.
    5. Hao, Yu & Gai, Zhiqiang & Wu, Haitao, 2020. "How do resource misallocation and government corruption affect green total factor energy efficiency? Evidence from China," Energy Policy, Elsevier, vol. 143(C).
    6. Tuochen Li & Dongri Han & Shaosong Feng & Lei Liang, 2019. "Can Industrial Co-Agglomeration between Producer Services and Manufacturing Reduce Carbon Intensity in China?," Sustainability, MDPI, vol. 11(15), pages 1-15, July.
    7. Rodrigue, Joel & Shi, Qing & Tan, Yong, 2024. "Trade policy uncertainty & resource misallocation," European Economic Review, Elsevier, vol. 164(C).
    8. Lionel Fontagné & Gianluca Santoni, 2022. "Regional Diffusion of Foreign Demand Shocks Through Trade and Ownership Networks," Working Papers 2022-08, CEPII research center.
    9. Zhidong Liu & Yang Cai & Xiaojing Hao, 2020. "The Agglomeration of Manufacturing Industry, Innovation and Haze Pollution in China: Theory and Evidence," IJERPH, MDPI, vol. 17(5), pages 1-28, March.
    10. Guo, Jie & Sun, Zixu, 2023. "How does manufacturing agglomeration affect high-quality economic development in China?," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 673-691.
    11. Xu Dong & Yali Yang & Xiaomeng Zhao & Yingjie Feng & Chenguang Liu, 2021. "Environmental Regulation, Resource Misallocation and Industrial Total Factor Productivity: A Spatial Empirical Study Based on China’s Provincial Panel Data," Sustainability, MDPI, vol. 13(4), pages 1-20, February.
    12. Kemeny, Thomas & Storper, Michael, 2020. "Superstar cities and left-behind places: disruptive innovation, labor demand, and interregional inequality," LSE Research Online Documents on Economics 103312, London School of Economics and Political Science, LSE Library.
    13. Liu, Yajie & Cui, Lijuan & Xiong, Yanyan & Yao, Xianguo, 2023. "Does the development of the Internet improve the allocative efficiency of production factors? Evidence from surveys of Chinese manufacturing firms," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 161-174.
    14. Wang, Bin & Yu, Minxiu & Zhu, Yucheng & Bao, Pinjuan, 2021. "Unveiling the driving factors of carbon emissions from industrial resource allocation in China: A spatial econometric perspective," Energy Policy, Elsevier, vol. 158(C).
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    16. Yu, Li & Ma, Tiemeng & Wu, Sirong & Lyu, Zhuoyang, 2023. "How does broadband internet affect firm-level labor misallocation: The role of information frictions," China Economic Review, Elsevier, vol. 82(C).

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    More about this item

    Keywords

    Misallocation; agglomeration; productivity; firm-level data;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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