Skills and Clusters

Abstract

There is a by now large literature on the effects of agglomeration on productivity and wages. The (empirical) question asked is the following: How much higher is productivity (and hence wages) in locations where production agglomerates. Several measures of agglomeration are used. The most common one is the volume of production quantified by employment. Some of the main contributions relying on this measure of agglomeration are Henderson (1986, 1988), Segal (1976), and Sveikauskas (1975). Another measure of agglomeration is the density of production quantified by employment per unit of space in a location. This is the measure used in Ciccone and Hall (1996) for example. The results in this literature suggest that, roughly, doubling employment in a location increases productivity and wages by 4 to 6 percent. Although this result is based mostly on US data, there is evidence that it also holds across European countries (Ciccone (2002)).