Between industry and labor market: Examining the impact of the spatial agglomeration of firms and industries on wages in the U.S.

Date of Completion

January 2007


Economics, Labor|Sociology, Industrial and Labor Relations




The importance of place for the study of firms and workers seems paradoxical in an era of globalization. However, firms continue to co-locate in industrial and urban clusters due to the advantages of spatial proximity. Several recent studies within the new economic geography tradition show that the spatial agglomeration of employment in a local labor market (both industry-specific and overall) benefits both firms and workers in terms of better firm performance and higher wages (due to increased productivity). I draw from several different theoretical perspectives (in addition to the new economic geography) in order to explain the relationship between spatial agglomeration and wages, including new structuralism, organizational ecology, and the new economic sociology. In the conclusion I outline a new bargaining power perspective which combines the insights from each of the existing perspectives within a framework focusing on social closure and worker power. Using data from the 1990 PUMS-L, I employ a 3-level hierarchical linear model (HLM) in order to test hypotheses regarding the effects of industrial and urban agglomeration on average wages as well as sex-based wage inequality. In the first part of the analysis, I examine the influences of agglomeration and other key variables on average wages (i.e., the intercept equation). In the second part of the analysis, I examine the relationship between agglomeration and the sex wage gap by allowing the slope for sex to vary across level 2 and level 3 units and predicting that variation with agglomeration and other key variables. I also focus on wages and wage inequality in the biotechnology sector. I find that workers benefit more from industrial agglomeration than urban agglomeration. In addition, industrial agglomeration increases the wage gap between men and women. Finally, industrial agglomeration has an even stronger effect on wages in the biotech sector, and women and men appear to benefit equally from working in biotech clusters. I conclude with a discussion of policy implications and suggestions for future research on the effects of place and space on workers' economic rewards in the U.S.^