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Labor Pooling, Labor Poaching and Spatial Clustering

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  • Pierre-Philippe Combes
  • Gilles Duranton

Abstract

When firms cluster in the same local labor market, they face a trade-off between the benefits of labor pooling (i.e., access to workers whose knowledge help reduce costs) and the costs of labor poaching (i.e., loss of some key workers to competition and the indirect effect of a higher wage bill to retain the others). We explore this trade-off in a duopoly game. Depending on market size and on the degree of horizontal differentiation between products, we characterize the strategic choices of firms regarding locations, wages, poaching and prices. Our results show that co-location, although it is always efficient, is not in general the equilibrium outcome.

Suggested Citation

  • Pierre-Philippe Combes & Gilles Duranton, 2001. "Labor Pooling, Labor Poaching and Spatial Clustering," CEP Discussion Papers dp0510, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0510
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    More about this item

    Keywords

    Labor pooling; labor poaching; firm clustering; agglomeration;

    JEL classification:

    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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