When firms have access to deeper and wider pools of talent, they are more likely to employ workers who are a better fit for their jobs. This leads to firms using their resources more efficiently, which results in higher levels of labor productivity. Because of this dynamic, French manufacturing firms located in more densely populated areas are 6.5 percent more productive than those located in less densely populated areas.
Economists Lionel Fontagne and Gianluca Santoni analyzed labor market data for more than 100,000 French manufacturing firms between 1993 and 2007. They considered two labor market factors that contributed to this population-based productivity gap: first, a manufacturing worker’s ability to find employment in a different manufacturing firm in the same locale, and second, a manufacturing firm’s ability to draw the kind of talent it needs from outside the manufacturing industry in that locale (e.g., the construction industry, the information industry, or education services). They find a 6.5 percent productivity gap between the average manufacturing worker in a densely populated city and less densely populated city, which amounted to €9,000 per worker (or $9,600).
