From 1940 to 1990, a 10 percent increase in a metropolitan area's concentration of college-educated residents was associated with a .6 percent increase in subsequent employment growth. Using data on growth in wages and house values, I attempt to distinguish between explanations for this correlation based on local productivity growth, and explanations based on growth in local consumption amenities.

Calibration of a city growth model suggests that roughly two-thirds of the growth effect of human capital is due to enhanced productivity growth, the rest being caused by growth in the quality of life. This contrasts with the standard argument that human capital generates growth in urban areas solely through local knowledge spillovers.

Several possible mechanisms might underlie the relationship between the concentration of skilled residents in a metropolitan area and subsequent growth in the area’s quality of life.

First, skilled residents may be the first to flee areas experiencing declines in consumption amenities and the first to enter areas experiencing improvements.

Second, concentrations of skilled residents may encourage the growth of consumer markets, such as restaurants and bars, which then make an area more attractive to potential migrants.

Third, highly educated households may act, through the political system or privately, to improve local quality of life, perhaps because of a desire to raise property values. Moreover, better educated households are more likely to be homeowners, and some evidence exists to suggest that homeowners make greater investments in their
local communities.

University of Chicago
Jesse M. Shapiro, tel. +1 773 834 2688

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19/06/2003

Jesse M. Shapiro

research

Urban Policy > Economy knowledge & employment > Urban economy

Competitiveness