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The plant size-place effect: agglomeration and monopsony in labour markets

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  • Manning, Alan

Abstract

This paper shows, using data from both the US and the UK, that average plant size is larger in denser markets. However, many popular theories of agglomeration – spillovers, cost advantages and improved match quality – predict that establishments should be smaller in cities. The paper proposes a theory based on monopsony in labour markets that can explain the stylized fact – that firms in all labour markets have some market power but that they have less market power in cities. It also presents evidence that the labour supply curve to individual firms is more elastic in larger markets.

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  • Manning, Alan, 2007. "The plant size-place effect: agglomeration and monopsony in labour markets," LSE Research Online Documents on Economics 19765, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:19765
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    3. Stef Proost & Jacques-François Thisse, 2019. "What Can Be Learned from Spatial Economics?," Journal of Economic Literature, American Economic Association, vol. 57(3), pages 575-643, September.
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    5. Azar, José & Marinescu, Ioana & Steinbaum, Marshall & Taska, Bledi, 2020. "Concentration in US labor markets: Evidence from online vacancy data," Labour Economics, Elsevier, vol. 66(C).
    6. Francesco Amodio & Nicolás de Roux, 2021. "Labor Market Power in Developing Countries: Evidence from Colombian Plants," Documentos CEDE 19267, Universidad de los Andes, Facultad de Economía, CEDE.
    7. Wei-Bin Zhang, 2020. "Monopsony and Discrimination in Labor Market in the Solow-Stiglitz Two-Group Neoclassical Growth Model," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 6(1), pages 1-19, June.
    8. Clémence Berson, 2016. "Local labor markets and taste-based discrimination," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-21, December.
    9. Dario Tortarolo & Roman D. Zarate, 2020. "Imperfect competition in product and labour markets. A quantitative analysis," Discussion Papers 2020-05, Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP).
    10. Böhme, Stefan & Burkert, Carola & Carstensen, Jeanette & Eigenhüller, Lutz & Niebuhr, Annekatrin & Roth, Duncan & Sieglen, Georg & Wiethölter, Doris, 2020. "Die Bedeutung der regionalen Wirtschaftsstruktur für die Arbeitsmarkteffekte der Corona-Pandemie - Eine erste Einschätzung," IAB-Forschungsbericht 202015, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    11. Charly Porcher & Hannah Rubinton & Clara Santamaría, 2020. "The Role of Establishment Size in the City-Size Earnings Premium," Working Papers 2020-029, Federal Reserve Bank of St. Louis, revised 29 Nov 2022.
    12. Olga Ivanova & d'Artis Kancs & Dirk Stelder, 2009. "Modelling Inter-Regional Trade Flows: Data and Methodological Issues in Rhomolo," EERI Research Paper Series EERI RP 2009/31, Economics and Econometrics Research Institute (EERI), Brussels.
    13. Asma Hyder, 2007. "Preference for Public Sector Jobs and Wait Unemployment: A Micro Data Analysis," PIDE-Working Papers 2007:20, Pakistan Institute of Development Economics.
    14. Axel Watanabe, 2020. "The Size Distribution of Cities with Distance-Bound Households," Working Papers 20001, Concordia University, Department of Economics.
    15. Octávio Figueiredo & Paulo Guimarães & Douglas Woodward, 2007. "Localization Economies and Establishment Scale: A Dartboard Approach," FEP Working Papers 247, Universidade do Porto, Faculdade de Economia do Porto.
    16. Reamonn Lydon, 1999. "Aspects of the Labour Market for New Graduates in Ireland - 1982-1997," The Economic and Social Review, Economic and Social Studies, vol. 30(3), pages 227-248.
    17. Torfs, Wouter & Zhao, Liqiu, 2015. "Everybody needs good neighbors? Labor mobility costs, cities and matching," Regional Science and Urban Economics, Elsevier, vol. 55(C), pages 39-54.
    18. Kichko, Sergey & Kokovin, Sergey & Zhelobodko, Evgeny, 2014. "Trade patterns and export pricing under non-CES preferences," Journal of International Economics, Elsevier, vol. 94(1), pages 129-142.
    19. Jordy Meekes & Wolter H. J. Hassink, 2023. "Endogenous local labour markets, regional aggregation and agglomeration economies," Regional Studies, Taylor & Francis Journals, vol. 57(1), pages 13-25, January.
    20. Martins, Pedro S. & Melo, António, 2024. "Making their own weather? Estimating employer labour-market power and its wage effects," Journal of Urban Economics, Elsevier, vol. 139(C).
    21. José Azar & Ioana Marinescu & Marshall Steinbaum, 2022. "Labor Market Concentration," Journal of Human Resources, University of Wisconsin Press, vol. 57(S), pages 167-199.
    22. Alan Manning, 2021. "Monopsony in Labor Markets: A Review," ILR Review, Cornell University, ILR School, vol. 74(1), pages 3-26, January.
    23. Porcher, Charly & Rubinton, Hannah & Santamaría, Clara, 2023. "JUE insight: The role of establishment size in the city-size earnings premium," Journal of Urban Economics, Elsevier, vol. 136(C).

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    More about this item

    Keywords

    Agglomeration; Labour Markets; Monopsony;
    All these keywords.

    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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