Does the urban wage premium imply higher firm-level labor shares in cities?

Florian Mayneris

No 17678, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: I find that on average, the firm-level labor share increases with local employment density, but this relationship is highly heterogeneous across industries.Through the lens of a theoretical framework featuring a CES production function, I show that this heterogeneity arises because both the density-elasticity of the relative cost of labor (adjusted for productivity) and the elasticity of substitution between capital and labor vary across industries. The magnitude of the effects I find implies that in industries where the density-elasticity of the firm-level labor share is non-null, agglomeration economies are capital-biased. Moreover, all else equal, industries where the labor share increases with density are less likely to locate in denser areas.

Keywords: Agglomeration economies; Firm-level labor share; Firms location decisions (search for similar items in EconPapers)
JEL-codes: R10 R12 R32 (search for similar items in EconPapers)
Date: 2022-11
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