Location decisions in a changing labour market environment (112)

Theme Track: Locational Analysis - Locational Preferences

Author:
Frank, Björn

Firms which belong to the same industry often cluster in certain regions, for a number of reasons usually discussed in regional economics as "localization economies". One of the most prominent of these is the "labour market pooling" argument: It makes sense for firms to locate where vacancies can be filled by experienced workers who do not have to remove when they take a new job. However, this argument does not come without caveats. Even apart from considerations which have nothing to do with the labour market, such as proximity to customers, wages might simply be lower where a firm acts as a local monopsonist, not running the risk of "poaching", a point recently stressed by Combs and Duranton (2001). Thus, it is of interest to investigate the determinants of the relative weight of the classical labour pooling argument. The following hypotheses, which are empirically tested in this paper, are derived from theoretical considerations, which are partly supported by a case-study on Hollywood, as film production has a high local concentration generally attributed to its labour market. Ceteris paribus, we expect sectoral local concentration to be higher - the higher the turnover rate is - the lower the firm specificity of the human capital is - the smaller the firm is. The empirical part of the paper focuses on the location of services needed for film production (not on the location of film production itself). These film-related services (FRS) typically consist of small firms, on which we have built up a new data set of more than 1500 German firms. For the different FRS, we find a very different local concentration (as measured by the Ellison-Glaeser, or normalized Hischman-Herfindahl, index of concentration). Furthermore, by means of a survey among these firms, we gather information on labour turnover, human capital specificity, etc. Controlling for other determinants of local concentration, our empirical results indicate the relative importance of labour relations on sectoral agglomeration. Finally, we discuss to which extent conclusions can be drawn for the development of service industries in general.

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