IDEAS home Printed from
   My bibliography  Save this paper

Labor Market Density and Increasing Returns to Scale: How Strong is the Evidence?


  • Yu-chin Chen

    (University of Washington)

  • Noah Weisberger

    (Goldman, Sachs & Co.)

  • Edwin Wong

    (University of Washington)


Models of economic geography posit that the density of economic activity has two e¤ects that oppose each other in equilibrium: decreasing returns to productive activities due to congestion e¤ects and increasing returns that result from information spillovers and local demand externalities. In an inuential paper, Ciccone and Hall (1996) looked at the effect of county level labor market concentration on per-worker Gross State Product in a cross section of US States, and observed that on net, the increasing returns/agglomeration effect dominates. We extend their analysis and re-examine the relationship between density and productivity across industries and over both states and time. Through careful identi cation of the source and nature of productivity shocks, we show that the evidence for agglomeration effects is indeed quite robust, even within industries, providing evidence for the presence of Marshallian externalities. As for the balance of agglomeration and congestion e¤ects found in previous literature, what we call net increasing returns to scale", the evidence is much weaker.

Suggested Citation

  • Yu-chin Chen & Noah Weisberger & Edwin Wong, 2002. "Labor Market Density and Increasing Returns to Scale: How Strong is the Evidence?," Working Papers UWEC-2011-05-R, University of Washington, Department of Economics, revised Feb 2011.
  • Handle: RePEc:udb:wpaper:uwec-2011-05-r

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Marcy Burchfield & Henry G. Overman & Diego Puga & Matthew A. Turner, 2006. "Causes of Sprawl: A Portrait from Space," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 587-633.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:udb:wpaper:uwec-2011-05-r. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael Goldblatt). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.