Who Gains from Agglomeration? The Wage, Productivity, and Cost Effects of Transport Improvements on Firms and Workers

Krista Riukula () and Touko Väänänen
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Krista Riukula: ETLA - The Research Institute of the Finnish Economy
Touko Väänänen: Aalto University

No 18103, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We study the impact of transport-induced agglomeration on workers' earnings, as well as the productivity and costs of establishments, in the capital region of Finland using comprehensive individual- and establishment-level registry data. To our knowledge, we are the first to jointly examine firm- and worker-level effects of agglomeration. We find that improved workplace-to-workplace accessibility increases employees’ annual earnings, particularly among workers in smaller firms. However, we find no statistically significant effects on value added or labour costs per worker at the establishment level. We propose two potential explanations for this discrepancy: (1) differences in the composition of workers between the worker- and establishment-level analyses due to, for example, new hires, and (2) rising costs associated with increased agglomeration. Further analysis reveals that enhanced accessibility leads to higher establishment employment and increased operating expenses, such as rents. Taken together, these findings suggest that the benefits of agglomeration are primarily shared between workers and property owners.

Keywords: transport project; productivity; agglomeration; accessibility (search for similar items in EconPapers)
JEL-codes: R12 R41 R42 (search for similar items in EconPapers)
Date: 2025-09
New Economics Papers: this item is included in nep-eur, nep-geo, nep-lma and nep-tre
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