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This article considers the heterogeneous microfoundations of agglomeration economies. It studies the co-location of industries to look for evidence of labour pooling, input sharing and knowledge spillovers. The novel contribution of the article is that it estimates single-industry models using a common empirical framework that exploits the cross-sectional variation in how one industry co-locates with the other industries in the economy. This unified approach yields evidence on the relative importance of the Marshallian microfoundations at the single-industry level, allowing for like-for-like cross-industry comparisons on the determinants of agglomeration. Using UK data, we estimate such microfoundation models for 97 manufacturing sectors, including the classic agglomeration cases of automobiles, computers, cutlery and textiles. These four cases—as with all of the individual industry models we estimate—clearly show the importance of the Marshallian forces. However, they also highlight how the importance of these forces varies across industries—implying that extrapolation from cases should be viewed with caution. The article concludes with an investigation of the pattern of heterogeneity. The degree of an industry’s clustering (localisation), entrepreneurship, incumbent firm size and worker education are shown to contribute to the pattern of heterogeneous microfoundations.

This paper considers the impact of public sector employment on local labour markets. Using English data at the Local Authority level for 2003 to 2007 we find that public sector employment has no identifiable effect on total private sector employment. However, public sector employment does affect the sectoral composition of the private sector. Specifically, each additional public sector job creates 0.5 jobs in the nontradable sector (construction and services) while crowding out 0.4 jobs in the tradable sector (manufacturing). When using data for a longer time period (1999 to 2007) we find no multiplier effect for nontradables, stronger crowding out for tradables and, consistent with this, crowding out for total private sector employment.

We analyze job flows in five transition countries: Poland, Estonia, Slovenia, Bulgaria, and Romania. Using comparable firm level data over the years 1993–1997, we find that in early transition job destruction dominates job creation, while the latter is picking over time; most job reallocation occurs within, rather than across sectors; ownership and firm size are the most relevant characteristics for understanding the dynamics of job flows. We investigate job creation and destruction at the firm level by estimating a firm growth equation. Our results indicate patterns of gross job flows and firm growth remarkably similar to those in market-based economies.

This paper investigates the local labor market impact of a UK relocation initiative, the 2014 Lyons Review. The review resulted in the dispersal of about 25,000 civil service jobs out of London and the South East towards other UK destinations. The paper aims to detect whether inflows of public sector jobs have crowded out private sector activity or stimulated the local provision of jobs in the private sector. By separately estimating direct and spillover effects, I find that the relocation programme raised private sector employment in the receiving areas and changed the sectoral distribution of local employment towards services and away from manufacturing. I also find evidence of displacement. Employers seem to move out of areas at 1-2km distance to a relocation site and move into areas at 0-1km distance. These agglomeration effects appear highly localised: the largest policy impact is found in areas that received the relocated jobs and spillover effects reduce sharply over distance.

Many prior treatments of agglomeration either explicitly or implicitly suppose that all industries agglomerate for the same reasons, with traditional Marshallian (1890) factors affecting all industries similarly. An important instance of this approach is the extrapolation of the agglomeration experience of one key sector or cluster to the larger economy. Another is the pooling of data to look at common tendencies in agglomeration. This paper uses UK establishment level data on coagglomeration to document heterogeneity across industries in the microfoundations of agglomeration economies. The pattern of heterogeneity that we document is consistent with both traditional Marshallian theories and with alternative approaches that emphasize the adaptive and organizational aspects of agglomeration. *Disclaimer: This work was based on data from the Business Structure Database and the Quarterly UK Labour Force Survey, produced by the Office for National Statistics (ONS) and supplied by the Secure Data Service at the UK Data Archive. The data are Crown Copyright and reproduced with the permission of the controller of HMSO and Queens Printer for Scotland. The use of the data in this work does not imply the endorsement of ONS or the Secure Data Service at the UK Data Archive in relation to the interpretation or analysis of the data. This work uses research datasets which may not exactly reproduce National Statistics aggregates. Agglomeration, microfoundations, heterogeneity, clusters

Research on entrepreneurship often uses information on self-employment to proxy for business creation and innovative behaviour. However, little evidence has been collected on the link between these measures. In this paper, we use data from the UK Labour Force Survey (LFS) combined with data from the Business Structure Database (BSD), and the Community Innovation Survey (CIS) to study the relation between self-employment, business creation and innovation. In order to do so, we aggregate individual and firm-level data at the Travel-to-Work Area (TTWA) and investigate how the incidence of self-employment correlates with the density of business start-ups and innovative firms. Our results show that in urban areas a higher incidence of self-employment positively and strongly correlates with more business creation and innovation, but this is not true for rural areas. Further analysis suggests that this urban/rural divide is related to lack of employment opportunities in rural areas, which might push some workers into self-employment as a last resort option.

Many blame globalisation for growing wage inequality in the UK. But according to research by Giulia Faggio, Kjell Salvanes and John Van Reenen, the rise in inequality is better explained by increasing dispersion in the productivity of firms related to their use of new technology. Their study finds that much of the rise in wage inequality is driven by increasing differences in wages among firms in the same industry. A major driver of such differences is firms' varying ability to make use of new technology. This is particularly felt in the service sector.

There has been a remarkable increase in wage inequality in the United States, UK, and many other countries over the past three decades. A significant part of this appears to be within observable groups (such as experience-gender-skill cells). A generally untested implication of many theories rationalizing the growth of within-group inequality is that firm-level productivity dispersion should also have increased. We utilize a UK firm-level panel dataset covering the manufacturing and non-manufacturing sectors since the early 1980s. We find evidence that productivity inequality has increased. Existing studies have typically underestimated this phenomenon because they focus only on the manufacturing sector where inequality has risen much less and which has shrunk rapidly. Most of the increase in individual wage inequality can be accounted for by an increase in inequality between firms (and within industries). Increased productivity dispersion appears to be linked with new technologies as suggested by models such as Caselli ( 1999 , Am. Econ. Rev ., 89, 78--102) and is not primarily due to an increase in transitory shocks, greater sorting or entry/exit dynamics. Copyright 2010 The Author 2010. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved., Oxford University Press.

Sixteen years into the transition, the problem of high joblessness has not been solved. Of the three explanations commonly discussed (i.e. ongoing reallocation; finished reallocation with redundant labour; wrong choice of institutional framework), we concentrated on the ongoing reallocation hypothesis. We show that there is a negative correlation between job creation in the private sector and unemployment. We also show that long-term unemployment depends on current and past values of short-term unemployment and that this path-dependence fades away as soon as we reach time t-3. We interpret this result as an indication that the process of reallocation started at the beginning of the 1990s still influences today's labour market. We address three components of the transition debate: shock therapy versus gradualism; privatization; and political change. Contrary to Godoy and Stiglitz (2006), we do not find gradualism superior to shock therapy in terms of private sector growth. In addition, we confirm that full privatization is positively associated with job destruction in the state sector. Finally, we show that during early years of democratization the state sector was dismantled more vigorously than in other periods.

Market work per person of working age differs widely across the OECD countries and there have been some significant changes in the last forty years. How to explain this pattern? Taxes are part of the story but much remains to be explained. If we include all the elements of the social security systems like early retirement benefits, sickness and disability benefits and unemployment benefits, then we can capture some aspects of the overall pattern but still a lot remains unexplained. The story favoured by Alesina et al. (CEPR DP.5140, 2005) is that the nexus of strong unions, generous welfare and social democracy implies both high taxes and pressure in favour of work-sharing in response to adverse shocks. This story, however, falls foul of the simple fact that most Scandinavian countries now do much more work than the French and Germans despite having stronger unions, more generous welfare, higher taxes and more social democracy. Ultimately, we are forced into the position that there is no simple story. Some of the broad patterns can be explained but there remain country specific factors which are hard to identify but lead to substantial differences from one country to another.

Inactivity rates among working age men over 25 have risen by a multiple of around four since the mid-1970s. Among prime-age men (aged 25–54), inactivity rates have risen even more (over five times) over the same period. By contrast, unemployment rates are roughly the same now as they were in the mid-1970s and inactivity rates among women have fallen significantly. Rises in the inactivity rate of prime-age men in the bottom skill quartile make up the majority of the increase in overall prime-age male inactivity since the mid-1970s. As a consequence, between 50 and 60 per cent of inactive prime-age men are now in the bottom skill quartile. Around 70 per cent of inactive prime-age men report themselves as having a limiting health problem. For older men, this number is around 50 per cent. In the 1970s, a mere 10 per cent of prime-age men reporting a limiting health problem were inactive. By the late 1990s, the proportion had risen to around 40 per cent. Since the 1970s, there has been a significant rise in the overall proportion of men reporting a limiting health problem. Much of the rise in prime-age male inactivity can be accounted for by these two facts. By contrast, among older men, around half the rise in inactivity since the 1970s is accounted for by increasing inactivity among those without any reported limiting illness. Many of these would be occupational pensioners. The level of inactivity among prime-age men is particularly concentrated among those who are both low skilled and suffering from a chronic health problem or disability. Over time as inactivity rose, this concentration got much worse. Important factors underlying these changes are the significant weakening of the low skill labour market and the operation of the invalidity benefit system.

It is often argued that countries with more flexible labor markets are better placed in attracting inward investment from multinational firms (MNEs). This is an issue when there is uncertainty in the marketplace and the firm faces some risk of closure of its branch plant. We study the MNE's location choice, explicitly taking into account exit, as well as entry, costs. We show that worker protection, through lay-off rules, deters potential investment in risky industries. Using evidence on MNE investment in Eastern Europe, we find support for our prediction that labor-market flexibility makes a location more attractive to the MNE.