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Who Gains from Agglomeration? The Wage, Productivity, and Cost Effects of Transport Improvements on Firms and Workers

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  • Riukula, Krista

    (ETLA - The Research Institute of the Finnish Economy)

  • Väänänen, Touko

    (Aalto University)

Abstract

We study the impact of transport-induced agglomeration on workers' earnings, as well as the productivity and costs of establishments, in the capital region of Finland using comprehensive individual- and establishment-level registry data. To our knowledge, we are the first to jointly examine firm- and worker-level effects of agglomeration. We find that improved workplace-to-workplace accessibility increases employees’ annual earnings, particularly among workers in smaller firms. However, we find no statistically significant effects on value added or labour costs per worker at the establishment level. We propose two potential explanations for this discrepancy: (1) differences in the composition of workers between the worker- and establishment-level analyses due to, for example, new hires, and (2) rising costs associated with increased agglomeration. Further analysis reveals that enhanced accessibility leads to higher establishment employment and increased operating expenses, such as rents. Taken together, these findings suggest that the benefits of agglomeration are primarily shared between workers and property owners.

Suggested Citation

  • Riukula, Krista & Väänänen, Touko, 2025. "Who Gains from Agglomeration? The Wage, Productivity, and Cost Effects of Transport Improvements on Firms and Workers," IZA Discussion Papers 18103, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp18103
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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