Firms Agglomeration and Unions

This Paper develops a model in which the interaction between product market imperfections, transportation costs, unions and workers immobility across regions creates a tendency for agglomeration of firms when transportation costs are low. The model fits quite well the European experience. It is able to explain the emergence of a centre-periphery pattern with equally populated regions. In the centre, most people work in the unionized industry and earn large wages. In contrast, workers in the periphery are employed at a low wage in a constant return to scale industry.