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Productivity and the geographic concentration of industry: the role of plant scale

  • Christopher H. Wheeler

A large body of research has established a positive connection between an industry's productivity and the magnitude of its presence within locally defined geographic areas. This paper examines the extent to which this relationship can be explained by a micro-level underpinning commonly associated with productivity: establishment scale. Looking at data on two-digit manufacturing across a sample of U.S. metropolitan areas, I find two primary results. First, average plant size - defined in terms of numbers of workers - increases substantially as an industry's employment in a metropolitan area rises. Second, results from a decomposition of localization effects on labor earnings into plant-size and plant-count components reveal that the widely observed, positive association between a worker's wage and the total employment in his or her own metropolitan area-industry derives predominantly from the former, not the latter. Localization economies, therefore, appear to be the product of plant-level organization rather than pure population effects.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2004-024.

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Date of creation: 2004
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Handle: RePEc:fip:fedlwp:2004-024
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