The purpose of this research is to investigate the determinants of local labour growth in Italian Local labour Systems (LLSs) over the period 1991-2001. Employing a Glaeser et al. (1992) modelling framework we try to assess whether knowledge spills over between firms within the same sector or between firms in different sectors, what is the role of competition as well as introducing new potential determinants of local growth. Our research is also interested in testing the sensitivity of the model to different model specifications, the inclusion of new variables, different levels of sectoral aggregation, and different estimation methods. In particular, in our analysis we propose an innovative estimation technique based on mixed models, which allows exploiting the information coming from our two cross-sectional dimensions, areas and sectors, using both fixed and random effects.