How are the potential gains from economic activity transmitted to the labour factor: more employment or more wages? Evidence from the Portuguese context

Abstract

The paper analyses the role of knowledge externalities in firms' employment and workers' wages. We test whether agglomeration economies and regional knowledge base exert a greater impact on wage growth than on employment growth, using spatial panel econometric techniques to control for unobserved spatial effects. Using a spatial panel for six Portuguese manufacturing industries, we found that regional knowledge spillovers, contrary to the theoretical assumptions, have a greater impact on employment in firms than on workers' wages. This analysis might enhance important policy debates about the effects of regional policies on employment and wages.