DP3323 Firms Agglomeration and Unions

Author(s): Pierre M Picard, Eric Toulemonde
Publication Date: April 2002
Keyword(s): agglomeration, monopolistic competition, unions
JEL(s): F12, F15, J51, R12
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3323

This Paper develops a model in which the interaction between product market imperfections, transportation costs, unions and workers immobility across regions creates a tendency for agglomeration of firms when transportation costs are low. The model fits quite well the European experience. It is able to explain the emergence of a centre-periphery pattern with equally populated regions. In the centre, most people work in the unionized industry and earn large wages. In contrast, workers in the periphery are employed at a low wage in a constant return to scale industry.