By means of theoretical and empirical analysis agglomeration economies as localized returns to scale are established as the basic source of economic disparity. The central implication for the labor market is the resulting path dependency of the spatial employment pattern. As an empirical investigation of migration within Germany documents strong regional segmentation in the short run, local wage formation is of particular importance for the adjustment process in response to changes of the spatial employment pattern. However, a theoretical discussion shows that in the German setting with centralized wage bargaining local wages tends to be inflexible. This view is supported by an empirical investigation of the spatial wage structure in Germany using district data.

It is dealt with disparities in employment growth, unemployment, and wages between regional labor markets in Germany. First, endogenous formation and growth of industry locations due to agglomeration economies is established as a basic source of disparity in employment. Then, spatial frictions and local wage inflexibility due to central wage bargaining are detected as causes of unemployment disparities. Throughout the book theoretical analysis is combined with rigorous empirical testing using a large set of regional data at district level. In order to gain and robustify empirical results, recent methods in panel econometrics and spatial data analysis are employed. An overview on the extent of key regional labor market disparities in Germany is given. The book enables to assess our current understanding of the role of locational issues in causing those disparities, and thus to understand the basic justification of regional policy.

Introduction: Regional Disparities in Employment Growth and Unemployment; Overview of the Study.- Employment in an Interregional Equilibrium: Local Factors and Increasing Returns; Economies of Agglomeration; Localization Economies from the Variety of Goods; Knowledge Spillovers and Dynamic Externalities; Empirical Implictions for th Employment Pattern.- Employment Location in German Manufacturing: The regional Distribution of Employment; The Regional Development of Employment; Implications for the Labor Market.- Interregional Migration in Germany: General Aspects of Migration and Employment; Local Determinants of Regional Migration.- Regional Wage Formation: Sources of Regional Wage Flexibility; Regional Wages and Central Wage Bargaining.- Regional Wage Flexibility in Germany: Existing Studies in the German Case; Empirical Analysis for West Germany's Districts.- Summary and Outlook.