The Volatility Advantages of Large Labor Markets

Maddalena Conte, Isabelle Méjean (), Tomasz Michalski () and Benoît Schmutz
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Tomasz Michalski: HEC Paris - Ecole des Hautes Etudes Commerciales

Working Papers from HAL

Abstract: Firms' labor demand is more volatile in larger cities. We propose and test a novel explanation for this finding. Faster hiring conditions attract productive firms with more volatile activity to denser locations where they can swiftly downsize or expand. We estimate a model of firm location choice using French data and show that (i) firm volatility is almost as predictive of location choice as productivity; (ii) both dimensions reinforce each other. This mechanism reduces the productivity--density gradient among volatile firms. Imperfectly correlated firm-level shocks, combined with higher operating costs induced by density, generate matching economies.

Keywords: Volatility; Labor market pooling; Firm location; Agglomeration economies (search for similar items in EconPapers)
Date: 2024-03-29
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-05107340

DOI: 10.2139/ssrn.4744092

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