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The plant size-place effect: agglomeration and monopsony in labour markets

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This article shows, using data from both the USA and the UK, that average plant size is larger in denser markets. However, many popular theories of agglomeration-spillovers, cost advantages and improved match quality-predict that establishments should be smaller in cities. The article proposes a theory based on monopsony in labour markets-firms in all labour markets have some market power but that they have less market power in cities-that can explain the stylized fact. It also presents evidence that the labour supply curve to individual firms is more elastic in larger markets, consistent with the monopsony hypothesis.

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en

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http://eprints.lse.ac.uk/29406/

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