Productivity and the Density of Human Capital*

Abstract

We estimate a model of urban productivity in which the agglomeration effect of density is enhanced by a metropolitan area's stock of human capital. Estimation accounts for potential biases due to the endogeneity of density and industrial composition effects. Using new information on output per worker for U.S. metropolitan areas along with a measure of density that accounts for the spatial distribution of population, we find that a doubling of density increases productivity by 2 to 4 percent. Consistent with theories of learning and knowledge spillovers in cities, we demonstrate that the elasticity of average labor productivity with respect to density increases with human capital. Metropolitan areas with a human capital stock one standard deviation below the mean realize no productivity gain, while doubling density in metropolitan areas with a human capital stock one standard deviation above the mean yields productivity benefits that are about twice the average. JEL Codes: R12, R30, J24, O40

The Pursuit of Economic Development

“…This is exactly what Jaison Abel, Ishita Dey, and I found in our research (Abel et al 2012), and it's also an important result from a study by Edward Glaeser and Matthew Resseger (2010). This is exactly what Jaison Abel, Ishita Dey, and I found in our research (Abel et al 2012), and it's also an important result from a study by Edward Glaeser and Matthew Resseger (2010).…”

“…For more information on the cluster analysis technique, which used a hierarchical method proposed by Joe Ward (1963), see the study by Todd Gabe et al (2012). NOTES 1.…”

Urban Scaling and the Production Function for Cities

“…Equation (11), under the assumption of constant α, can be easily related to the familiar Cobb-Douglas production function, which is a widely used model for national and urban economies (see, for example, [7], [13], [14], [36]). This requires the introduction of conversion factors relating wages, W i ( t ), to labor input, L i ( t ), and capital income, R i ( t ), to capital input, K i ( t ) :): w is average wage, while r is the average rental price of capital.…”

“…Basically, a production function encapsulates a compact description of how aggregate economic output is generated from aggregate inputs, such as labor and capital. The conditions under which specific forms of a production function can be used to capture economic activity in cities within an urban system are often simply assumed and very rarely verified (see, for example, [7]). The major contribution of this paper is to address the question of how specific forms of production functions, common to all cities, emerge as effective models of economic output as a result of the observation of urban scaling relations and their theoretical underpinnings.…”

Agglomeration of knowledge intensive business services and urban productivity

“…The existing empirical research indicates that human capital‐based externalities are likely to be more important at the higher end of the educational attainment spectrum, that is, college graduates (Rauch ; Moretti ; Fu ; Bacolod et al ; Abel et al ). Therefore, our measure of the human capital stock per worker is the ratio of the city's number of people with a college degree to total employment.…”