Spatial Sorting of Workers and Firms
Abs tract:
Why do productive workers and fir ms locate together in dense cities? I develop a new theory of two-sided sor ting in which both heterogeneous workers and firms sort across space. The l ocation choices of workers and firms affect each other and endogenously gen erate spatial disparities in the presence of three essential forces: comple mentarity between worker and firm productivity, random matching within fric tional local labor markets, and congestion costs. I demonstrate that the de centralized equilibrium exhibits excessive concentration of workers and fir ms, and dispersing them away from dense locations can mitigate congestion w ithout reducing output. I then provide direct empirical evidence of the two -sided sorting mechanism using German administrative microdata. An exogenou s increase in the quality of the workforce in a location results in more pr oductive firms choosing that location. Finally, to quantify the implication s of the model, I calibrate it to U.S. regional data and show that policies that relocate workers and firms toward less dense areas can increase welfa re.
DTSTAMP:20260427T002002Z DTSTART:20241118T163000Z DTEND:20241118T180000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR