برون سپاری، ادغام بازار کار و قراردادهای کار

This paper considers the interaction between input sharing and labor market pooling in urban areas. In particular, it examines the impact of the size of a city and business risks on the organizational structures of firms located in urban agglomerations, and it also discusses the impact of organizational structure on incentives to insure workers against income risks. It is shown that manufacturing firms suffer from a coordination game in their decision to outsource production. The existence of idiosyncratic risks causes manufacturers to refrain from outsourcing. The incentives to offer wage and employment protection to workers are more pronounced when manufacturers outsource the production of their inputs to a local market, which mitigates the impact of labor market pooling.

Since Marshall (1890), many explanations of urban agglomeration include the features of input sharing and labor market pooling. Input sharing is seen as a means for manufacturing firms to improve their productivity and the quality of their products. As urban agglomerations encompass larger groups of specialized suppliers, manufacturers enjoy a wider input diversity that boosts their productivity. Labor market pooling is often seen as a sharing mechanism through which workers reduce their wage and employment risks. When workers cannot obtain income and employment protection in their employment contracts, they benefit from settling in larger urban areas, where a larger pool of employers offers more numerous job opportunities and diminishes the risk of wage fluctuations (Krugman, 1991). However, input sharing and labor market pooling are not orthogonal. On the one hand, the diversity of input producers in a city determines manufacturers’ incentives to share their inputs with other firms. If a city offers a much diversified range of inputs, manufacturers may find it more profitable to outsource this production, whereas they may choose to integrate their component production if they do not find appropriate inputs in the area. As a result, cities of similar size may host manufacturing firms with different organizational structures, which definitively may have an impact on the transmission of risk to workers. The different risk transmissions in turn affect the firms’ incentives to insure workers through long-term contracts and the workers’ benefits from labor market pooling. On the other hand, demand and productivity uncertainty has an impact on the firms’ choice to share their inputs with each other. Firms’ idiosyncratic shocks alter their labor demands and are passed to other manufactures through local wages. As a result, manufacturers hurt by bad demand shocks may prefer to avoid situations in which local wages are boosted by successful firms. They may mitigate the impact of this situation by signing long-term contracts with their employees and/or by changing their organizational structure. If they integrate their component production, they limit the extent of input sharing and isolate themselves more efficiently against the business fluctuations of other manufacturers.

This paper has discussed two possible relationships between input sharing and labor market pooling. The latter are not orthogonal, as they influence firms’ organizational structures and labor contracts when firms face uncertainty in their demand or productivity. We have examined these relationships within an admittedly stylized model, but one that allows for indivisibilities in production, endogenous industry organizational structure, risk, and endogenous labor contracting. First, the paper explains how city size and business risk impact the organizational structures of manufacturing firms. Small urban areas give incentives to manufacturers to avoid outsourcing because no local component market can provide them with a sufficiently large range and amount of components at low enough prices. By contrast, larger urban areas offer a stronger potential for input diversity, which may outweigh the cost of excessive component prices and provide incentives to outsource manufacturing production. Manufacturers however suffer from a coordination failure in their decision to outsource production, which may lock them into organizations that are too tightly integrated. Market thickness thus makes outsourcing more likely only if firms can solve this coordination failure. In addition we show that the existence of idiosyncratic risks causes manufacturers to refrain from outsourcing. This is because outsourcing manufacturers lose control over component prices and ranges and prefer to maintain the possibility of adapting component ranges according to the realizations of their demand shocks. These results allow us to concentrate on two types of organizational structures, where all manufacturers either outsource or integrate their production. Second, the paper shows that organizational structures chosen by firms have implications on the labor contracts that are offered in the urban area. When firms decide to offer long-run employment and wage contracts, they lose the flexibility to adapt their production level to realized demand. In addition to this, integrated manufacturers lose the flexibility to adapt their component range, whereas small component producers incur no such additional flexibility cost, as they contribute to the local input diversity but do not benefit from it. Therefore, component producers face a lower cost from committing to long-term labor contracts. Because entry is free, component producers compete to attract workers by offering the most protective labor contracts. In this paper, it is shown that, if component producers are not financially constrained, they offer labor contracts that fully insure workers at a zero premium whatever the business risks in the area. Therefore, there exists no labor market pooling effect, as wage risks are fully supported by the component sector. By contrast, integrated manufacturers offer labor contracts that depend on local business risks and wage fluctuations. Labor market pooling then has a role to play. For instance, if manufacturing firms are numerous and face perfectly diversified demand shocks, the market wages absorb the shocks and become almost constant so that workers do not need insurance. Labor market pooling becomes a perfect substitute for labor market contracts. This role vanishes as risks become more correlated.