Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: This paper focuses on a much cited but seldom measured micro-foundation for agglomerations: inter-firm labor mobility. Labor mobility has been advanced as a vehicle for knowledge flows and labor market efficiency, and is often maintained to be an important source of agglomeration economies. Based on matched employer-employee data, we estimate the influence that spatial employment density has on the probability of inter-firm job-switching, while controlling for ample attributes of each worker and employer. The rate of inter-firm labor mobility varies substantially across regions and we document a systematic and robust positive influence of density on the probability of job switching. The likelihood that such switching is intra-regional is significantly higher if the employees operate in denser regions, verifying that labor mobility (and thus the effects mediated by it) is indeed localized. Higher rates of inter-firm labor mobility appear as a likely mechanism behind the empirically verified productivity advantage of dense regions.

Keywords: job-switching; inter-firm labor mobility; agglomeration economies; external economies; micro-foundations; density

JEL-codes: J61; J62; R11; R12

26 pages, April 26, 2011

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