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Spatial wage differentials, geographic frictions and the organization of labor within firms

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  • Acosta, Camilo
  • Lyngemark, Ditte Håkonsson

Abstract

This paper studies the spatial organization of firms, both theoretically and empirically. Two new facts in Danish register data motivate the analysis: (i) firms have become increasingly spatially fragmented, and (ii) headquarters (HQ) establishments have become more manager-intensive. We develop and estimate a structural model in which firms allocate labor across establishments and produce non-rival, manager-intensive HQ services. Identification relies on exogenous variation in labor supply induced by commuting-augmented immigration shocks. We estimate elasticities of substitution across establishments of −9.8 for workers and −1.1 for managers, consistent with firms reallocating general labor more easily than managerial inputs. Our decomposition shows that rising managerial wages at HQs – interacted with firm-level scale effects – explain about half of the observed increase in HQ managerial intensity, highlighting the importance of intangible internal inputs in shaping firm spatial structure.

Suggested Citation

  • Acosta, Camilo & Lyngemark, Ditte Håkonsson, 2025. "Spatial wage differentials, geographic frictions and the organization of labor within firms," Regional Science and Urban Economics, Elsevier, vol. 114(C).
    • Handle: RePEc:eee:regeco:v:114:y:2025:i:c:s0166046225000456
    DOI: 10.1016/j.regsciurbeco.2025.104128
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    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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