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Abstract This chapter focuses on a potential source of agglomeration economies that has received particular attention: labor market pooling. A localized industry gains a great advantage from the fact that it offers a constant market for skill. A simple model is used to clarify the microeconomic foundations of labor pooling as a source of agglomeration economies and to motivate empirical analysis. The model is a version of the labor pooling model of Krugman which predicts that sectors whose establishments experience more idiosyncratic volatility will be more spatially concentrated. The chapter assesses the importance of labor market pooling as a source of agglomeration economies empirically and provides establishment-level data from the United Kingdom's Annual Respondents Database, which underlies the Annual Census of Production. The sectors whose establishments experience more heterogeneous employment shocks have greater potential to benefit from labor pooling and, to exploit this, will be more spatially concentrated. It is often argued that urbanization is more important for services than for manufacturing.
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