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Journal of Economic Geography Advance Access published online on September 21, 2009
Journal of Economic Geography, doi:10.1093/jeg/lbp042
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© The Author (2009). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

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

Allan Manning*

*Centre for Economic Performance, London School of Economics, Houghton Street, London WC2A 2AE, UK. email <a.manning{at}lse.ac.uk>

JEL classifications: J21, J42, R23

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.

Keywords: Agglomeration, labour markets, monopsony
Date submitted: 15 May 2008     Date accepted: 9 July 2009


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