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

Agglomeration and job matching among college graduates

“…Though our results are for college undergraduate degree holders only, these estimates fit squarely in the well-established range of 2.0 to 8.0 percent found by most studies measuring the magnitude of urban agglomeration economies, and are toward the upper end of the 2.0 to 4.0 percent range found by recent work that accounts more fully for potential sorting and composition effects (Rosenthal and Strange, 2004;Combes et al, 2008Combes et al, , 2010Abel, Dey, and Gabe, 2012).…”

“…Perhaps most fundamentally, biases may result if either the workers or job opportunities in large and dense urban areas are systematically more or less conducive to job matching. Indeed, recent research indicates that it is important to account for worker characteristics and composition effects in studies of the effects of urban agglomeration (Combes et al, 2008(Combes et al, , 2010Abel, Dey, and Gabe, 2012). As such, we include a wide array of individual-level characteristics, including choice of college major, and account for differences in the economic structure and performance of metropolitan areas in all of our models.…”

“…Indeed, recent research indicates that it is important to account for worker characteristics and composition effects in studies of the effects of urban agglomeration (Combes et al, 2008(Combes et al, , 2010Abel, Dey, and Gabe, 2012).…”

Shared Knowledge and the Coagglomeration of Occupations

“…The empirical results shown in Table 7 are similar to those reported in a study by Abel, Dey, and Gabe (2012) showing that the industry sector of education and health is not characterized by substantial exchanges of information or sharing of ideas.…”

“…This is because moving between jobs with similar knowledge requirements is easier and less costly within a labor market than between them. Likewise, the physical proximity that exists at smaller spatial scales helps to facilitate the flow of knowledge by increasing the amount of interaction and face-toface contact that people experience (Storper and Venables, 2004;Abel, Dey, and Gabe, 2012). …”