Economic geography models predict the agglomeration of manufacturing activies only if the workforce is mobile. Still, as the E.U.'s experience shows, core-periphery patterns exist even though the workforce is rather immobile. The paper provides a theoretical explanation for such core-periphery patterns through the effect that unions have on firms' incentive to agglomerate in a region. The paper offers fully analytical results about location equilibria and some interesting welfare properties. © 2005 Elsevier B.V. All rights reserved.