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

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  • Mayneris, Florian

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 imply that in industries where the density-elasticity of the firm-level labor share is non-null, agglomeration economies are capital-biased. All else equal, industries where the labor share increases with density are less likely to locate in denser areas, especially manufacturing ones.

Suggested Citation

  • Mayneris, Florian, 2022. "Does the urban wage premium imply higher firm-level labor shares in cities?," CEPR Discussion Papers 17678, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17678
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    More about this item

    Keywords

    Agglomeration economies; Firm-level labor share; Firms location decisions;
    All these keywords.

    JEL classification:

    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • 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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