Disentangling Economies of Density: Evidence from micro-geographic data

This study utilizes micro-geographic data to examine wage premiums across different residential and employment agglomerations. In the existing literature on economies of density, the distinction between residents and workers is often addressed without a clear differentiation between the two. This oversight hinders the formulation of practical policy recommendations for compact urban planning and industrial location strategies. Amid Japan’s ongoing population decline, certain regions retain the capacity to attract industrial activity despite their waning appeal as residential areas. However, when policy discussions focus exclusively on residential agglomeration, regions with substantial potential to revitalize local industrial clusters may be overlooked. To bridge this gap, the study integrates manufacturing establishment data with regional mesh data on both residents and workers. This study finds that employment concentration, rather than residential concentration within compact geographic areas accounts for wage premiums, thereby highlighting the critical role of spatial locality of employment in shaping industrial location strategies.