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Location Effects or Sorting? Evidence from Firm Relocation

Author

Listed:
  • Carry, Pauline
  • Kleinman, Benny
  • Nimier-David, Elio

Abstract

What role do firms play in geographic wage disparities? This paper exploits establishment mobility as a novel source of identification to separate firm sorting from location treatment effects, i.e., the local wage premium for a given worker at a given firm (due to, e.g., geography, infrastructure, amenities). Using data from France and the U.S., we first document key facts about establishment relocation: 4% of establishments move each year, retaining their activity and structure while adjusting their workforce and wages. Combining establishment and worker mobility in France, we estimate a model that decomposes wage variation due to workers, firms, and locations. Spatial wage differences are primarily driven by sorting: worker composition accounts for 30%, firm composition for 17%, and their co-location for 34%. Residual location effects explain only 2–4%. Establishment sorting also accounts for most of the urban wage premium and the higher wage growth in larger cities.

Suggested Citation

  • Carry, Pauline & Kleinman, Benny & Nimier-David, Elio, 2026. "Location Effects or Sorting? Evidence from Firm Relocation," CEPR Discussion Papers 21705, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21705
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    Keywords

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    JEL classification:

    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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