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Job Turnover, Risk Sharing, and Regional Wages in Western Germany


  • Daniel F. Heuermann

    () (Institute for Labour Law and Industrial Relations in the EC, University of Trier)


We test Krugman’s (1991) notion of risk sharing in pooled labor markets as one of the micro-foundations of agglomeration economies, i.e. we examine whether firms share risks from idiosyncratic and sector specific shocks through labor pooling. Estimating wage functions we find that job turnover depresses wages at the regional and the firm level, indicating that firms incur significant adjustment costs when experiencing productivity shocks. On the regional level, industrial specialization and diversification mitigate wage depressing effects of different types of employment shocks. On the firm level, shock intensive firms are found to be more productive when being located in spatial proximity to firms with large but opposite employment shocks. Both findings provide evidence that labor pooling matters as a source of agglomeration economies by allowing firms to share employment risks. However, we find only weak evidence for shock intensive industries to be more concentrated, suggesting that agglomeration costs exceed the benefits from risk sharing.

Suggested Citation

  • Daniel F. Heuermann, 2008. "Job Turnover, Risk Sharing, and Regional Wages in Western Germany," IAAEG Discussion Papers until 2011 200804, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
  • Handle: RePEc:iaa:wpaper:200804

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    More about this item


    Marshallian Externalities; Labor Pooling; Specialization; Idiosyncratic Shocks;

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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