Discussion paper

DP17678 Does the urban wage premium imply higher firm-level labor shares in cities?

I find that the firm-level labor share increases with local employment density on average, but this relationship is highly heterogeneous across industries. This heterogeneity reflects two things: i) the relative cost of labor increases with density, but not equally across industries; ii) the elasticity of substitution between capital and labor varies across industries too, and it is most of the time different from 1 (the usually-assumed Cobb-Douglas case). That the labor share varies with local density affects firms' location decisions in a way that is both statistically and economically significant, especially in manufacturing.

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Citation

Mayneris, F (2022), “DP17678 Does the urban wage premium imply higher firm-level labor shares in cities?”, CEPR Press Discussion Paper No. 17678. https://cepr.org/publications/dp17678