Testing for labour pooling as a source of agglomeration economies: Evidence for labour markets in England and Wales

Abstract This paper generates new evidence for England and Wales on the importance of labour pooling as a source of agglomeration economies. Estimates of worker and firm productivity are obtained from longitudinal worker and firm micro-data and used to test the hypothesis that denser labour markets increase the quality of the matching between employees and employers across labour markets. Our findings provide evidence supportive of a positive relationship between the quality of the employee-employer matching and the economic size of labour markets.