The Downsides of Company Towns: What You Need to Know

In certain cities, sometimes an entire industry seems to make its home there. In Los Angeles, it's creative work; in New York, it's finance and journalism; in D.C., it's politics; in your own town, it might be paper or academia or shipping or agriculture. When mining was still big, private companies would effectively own entire settlements, from the general store to the workers' housing. Things aren't quite that bad these days, but there are reasons you may want to avoid setting up shop in a one-horse town.

Researchers at the University of Illinois at Urbana-Champaign have just released a study looking at how concentrating an industry in one place affects how workers are treated within that industry. The news is not good: In short, it gives rise to monopoly and monopsony conditions, which means erosion of job quality, wage stagnation, and bigger pay gaps.

Often when these conditions arise, it's because they're good for the people in charge, but even the powerful should take another look at this "company town" mentality. "When you're in a market that's not dominated by a singular powerbroker, it's a lot easier for firms to generate profits," said coauthor Richard Benton. "When you have a supply chain that's dominated by a very powerful firm, or you have entire industries or markets that are dominated by very powerful firms, that makes it more difficult for smaller firms that do business with them to be successful and turn a profit. And that, in turn, shrinks the economic surplus available for workers."

In short, when it comes to choosing where you live and work, there may be something to choosing a more diversified locale. A nice balance of industries throughout your city may help your own job a lot more than you'd think.