DP2975 Labour Pooling, Labour Poaching and Spatial Clustering

Author(s):	Pierre-Philippe Combes, Gilles Duranton
Publication Date:	September 2001
Keyword(s):	agglomeration, firm clustering, labour poaching, labour pooling
JEL(s):	J60, L13, R32
Programme Areas:	Industrial Organization, International Trade and Regional Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=2975

When firms cluster in the same local labour market, they face a trade-off between the benefits of labour pooling (i.e., access to workers whose knowledge helps reduce costs) and the costs of labour poaching (i.e., loss of some key workers to competition and the indirect effect of a higher wage bill to retain the others). We explore this trade-off in a duopoly game. Depending on market size and on the degree of horizontal differentiation between products, we characterize the strategic choices of firms regarding locations, wages, poaching and prices. Our results show that co-location, although it is always efficient, is not in general the equilibrium outcome.