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Will there be a concentration of alikes? The impact of labor market structure on industry mix in the presence of product market shocks

  • Stahl, Konrad O.
  • Walz, Uwe
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    We analyze determinants of regional industry mix and focus especially on the influence of labor market characteristics. By combining a labor market pooling argument with an argument involving the cost of switching a worker from one firm to another, we show that in the presence of product market shocks there exists an interesting trade-off for the concentration of firms of the same industry in one region. Firms belonging to different industries are hedged against industry-specific shocks if they settle in the same region, but face higher switching costs (retraining costs for workers moving from one firm to another). In addition, with a given supply of labor there is an additional rationing effect affecting the location decisions of firms. Against the background of these trade-offs we analyze the resulting location decisions of firms in a two-regions-two-industry-four-firm framework. We analyze the impact of different parameters on the location choice of firms.

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    File URL: http://econstor.eu/bitstream/10419/19411/1/140.pdf
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    Paper provided by Hamburg Institute of International Economics (HWWA) in its series HWWA Discussion Papers with number 140.

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    Date of creation: 2001
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    Handle: RePEc:zbw:hwwadp:26362
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