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α: calibrated so average coauthorship-adjusted count equals average raw count
I find that on average, the firm-level labor share slightly increases with local employment density in the manufacturing sector, but this relationship is heterogeneous across industries. Through the lens of a theoretical framework featuring a CES production function, I show that this heterogeneity arises because both the density-elasticity of the relative cost of labor (adjusted for productivity) and the elasticity of substitution between capital and labor vary across industries. The magnitude of the effects I find implies that in several industries, agglomeration economies are not Hicks-neutral. Moreover, the higher the density-elasticity of the firms’ labor share, the lower their propensity to locate in denser areas, all else being equal.