Thick-Market Effects and Churning in the Labor Market: Evidence from U.S. Cities

Workers change occupation and industry less often in more densely populated areas, a relationship that had not been previously reported. This reduced-form result is robust to standard demographic controls, as well as to including aggregate measures of human capital and sectoral mix. Analysis of displaced worker surveys shows that this relationship is present in cases of involuntary separation as well. In contrast, we actually find the opposite result (higher rates of occupational and industrial switching) for the subsample of younger workers. These results provide evidence consistent with increasing-returns-to-scale matching in labor markets. Results from a back-of-the-envelope calibration suggest that this mechanism has an important role in raising both wages and returns to experience in denser areas.