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Location Effects or Sorting? Evidence from Firm Relocation

Author

Listed:
  • Pauline Carry
  • Benny Kleinman
  • Elio Nimier-David

Abstract

What role do firms play in geographic wage disparities? This paper exploits establishment mobility as a novel source of identification to separate firm sorting from location treatment effects, i.e., the local wage premium for a given worker at a given firm (due to, e.g., geography, infrastructure, amenities). Using data from France and the U.S., we first document key facts about establishment relocation: 4% of establishments move each year, retaining their activity and structure while adjusting their workforce and wages. Combining establishment and worker mobility in France, we estimate a model that decomposes wage variation due to workers, firms, and locations. Spatial wage differences are primarily driven by sorting: worker composition accounts for 30%, firm composition for 17%, and their co-location for 34%. Residual location effects explain only 2–4%. Establishment sorting also accounts for most of the urban wage premium and the higher wage growth in larger cities.

Suggested Citation

  • Pauline Carry & Benny Kleinman & Elio Nimier-David, 2025. "Location Effects or Sorting? Evidence from Firm Relocation," NBER Working Papers 33779, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33779
    Note: EFG ITI LS PE PR
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    Cited by:

    1. Diegmann, Andre & Müller, Steffen & Schoefer, Benjamin, 2026. "Off the Labor Supply Curve: The Zero Employer Size Wage Effect Within Large Firms," CEPR Discussion Papers 21569, Centre for Economic Policy Research.
    2. Michael Amior & Shmuel San, 2026. "Internal Pay Equity and the Quantity-Quality Trade-Off in Hiring," RFBerlin Discussion Paper Series 26052, ROCKWOOL Foundation Berlin (RFBerlin).

    More about this item

    JEL classification:

    • F0 - International Economics - - General
    • J0 - Labor and Demographic Economics - - General
    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General

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