The Geography of Worker - Firm Sorting:Drivers of Rising Colocation

Nils Torben Hollandt and Steffen Müller
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Nils Torben Hollandt: Faculty of Economics and Management, Otto-von-Guericke University Magdeburg
Steffen Müller: Faculty of Economics and Management, Otto-von-Guericke University Magdeburg

No 26015, FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management

Abstract: Using social security data and an AKM wage decomposition, this paper examines spatial wage inequality in West Germany. Spatial inequality in log wages rose sharply between 1998 and 2008, driven largely by stronger positive spatial assortative matching between workers and establishments, i.e., colocation. Changes in establishment wage premia were largely unrelated to rising colocation, while labor mobility reduced it. Instead, growth in worker pay premia among stayers was concentrated in regions that already had many high-wage workers and establishments, amplifying pre-existing patterns and leading to "colocation without relocation." Germany's rising trade surplus raised stayers' pay premia in precisely these regions and quantitatively accounts for the observed increase in colocation, pointing to trade as an important mechanism.

JEL-codes: J31 J61 R23 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2026
New Economics Papers: this item is included in nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:mag:wpaper:26015

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