Hiring Difficulties and Manpower Flows: Does Labour Market Density Matter?

We analyse the impact of density on labour markets when firms and workers are heterogeneous. Using the results of a survey carried out in the French Midi-Pyrénées region, we show that, for comparable sizes and sectors, recruiting firms in low-density areas experience more difficulties in finding workers meeting the requirements of the jobs, especially since being usually located far away from large urban agglomerations, they appear to hold little attractiveness for potential migrants. As a consequence, they recruit less and the competition between firms on the local labour market is reduced. This, in turn, contributes to lessen the hiring difficulties for firms that do post vacancies in low-density areas. The labour market density therefore has opposite effects on the causes of hiring difficulties, but we show that its overall impact on the frequency of those difficulties for firms which hire is negative. Finally, because they are less likely to find a better match than their current job, employees living in low-density local labour markets have a lower tendency to resign than other workers do. As a consequence, turnover increases density.