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The Geography of Worker - Firm Sorting:Drivers of Rising Colocation

Author

Listed:
  • Nils Torben Hollandt

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Steffen Müller

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

Abstract

Using social security data and an AKM wage decomposition, this paper examines spatial wage inequality in West Germany. Spatial inequality in log wages rose sharply between 1998 and 2008, driven largely by stronger positive spatial assortative matching between workers and establishments, i.e., colocation. Changes in establishment wage premia were largely unrelated to rising colocation, while labor mobility reduced it. Instead, growth in worker pay premia among stayers was concentrated in regions that already had many high-wage workers and establishments, amplifying pre-existing patterns and leading to "colocation without relocation." Germany's rising trade surplus raised stayers' pay premia in precisely these regions and quantitatively accounts for the observed increase in colocation, pointing to trade as an important mechanism.

Suggested Citation

  • Nils Torben Hollandt & Steffen Müller, 2026. "The Geography of Worker - Firm Sorting:Drivers of Rising Colocation," FEMM Working Papers 26015, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    • Handle: RePEc:mag:wpaper:26015
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    File URL: https://www.fww.ovgu.de/fww_media/femm/femm_2026/2026_15.pdf
    File Function: First version, 2011
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    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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