This paper empirically investigates the role of labor pooling in the agglomeration of manufacturing industries. Theoretically, it is shown that agglomeration of workers positively affects on firms' profits by assuring smooth employment adjustment when they are faced with idiosyncratic shocks. Hence, it is expected that there is positive association between the extents of agglomeration of industries and the magnitudes of idiosyncratic shocks. In this paper, we make the index of labor pooling by calculating the volatility of each industry's employment, and investigate the relationship between this index and the agglomeration index. Positive correlation is found, and it is robust even controlling for other agglomeration sources.
