City Growth and Adjustment: The Role of Human Capital

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City Growth and Adjustment The Role of Human
Capital

• by
• Curtis J. Simon
• Associate Professor
• John E. Walker Department of Economics
• Clemson University

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What determines regional growth?

• Regions grow when their productivity exceeds
  productivity elsewhere
• Resources are mobile within the U.S.
• Resources, including people, move to regions
  offering the highest return
• The same factors that determine overall
  productivity growth affect regional growth

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What determines overall productivity growth?

• Human capital (HK) is central
• One measure is formal schooling
• Also includes the level of technology as
  manifested in patents, blueprints, and unwritten
  form as well

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Why are Cities Important?

• Internal effects of HK (e.g, benefit of college
  degree) are familiar
• Paul Romer and Nobel Laureate Robert Lucas have
  argued that HK has external effects as well
• Individuals learn faster in presence of people
  with high levels of HK
• Abundance of high-HK individuals provides variety
  of perspectives
• Particularly important in new industries with
  greater uncertainty in production technique
• Larger pool means better matching of talents
• Lucas cities facilitate generation of HK
  externalities
• Idea picked up by Edward Glaeser (Harvard),
  Richard Florida (Carnegie-Mellon), among others
• But even w/o such externalities, geographic
  proximity facilitates interaction and transactions

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HK externalities are not the whole story

• During past quarter century, US employment has
  shifted dramatically in favor of industries that
  use HK intensively
• Hypothesis Cities with higher levels of HK more
  likely to attract employment in industries that
  use it intensively
• Although labor mobile in the long run, it is
  costly to hire high-HK workers in one city and
  move them to another
• Other questions
• Are effects of college graduates picking up
  presence of local colleges or innovation
  (patents)?
• What is the role of manufacturing in generating
  employment growth?
• Does an industry or sector grow faster in cities
  where they are already relatively established?

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Implications

• Employment should grow faster in cities with
  higher levels of HK, particularly sectors that
  use HK intensively
• Recently examined importance of HK for employment
  growth 1977-97 in broad sectors
• Overall
• Skill-Intensive, Rising Industries (15
  industries)
• Unskilled-Intensive, Rising Industries
• Declining Industries
• Human capital measured as college grads
• Study controls for many other factors
• Other measures of human capital
• Relative size of local colleges and universities
• Innovation as measured by patents per worker
• Wage rates
• Initial size of the city
• Relative size of manufacturing sector
• Region and climate

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Effect of 5-percentage point increase in Percent
College Graduates on Employment Growth

• Typical city grew by 75 over 1977-97 period
• would have grown 15 percentage points more
• Rising, skill-intensive employment in typical
  city grew by 145 over 1977-97 period
• would have grown 25 percentage points more
• Even employment in unskilled-intensive and
  declining industries aided by presence of college
  graduates
• Effects are smaller, as one might expect

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Other Findings

• Effects of college grads do NOT merely capture
  presence of college or patent innovation
• 4-year college employment share and patents per
  worker both have positive, significant effects as
  well, especially in rising, skill-intensive
  industries
• Having larger sector at start of period helps,
  but there are diminishing returns to having a
  head start, suggesting that lagging cities catch
  up over time
• Catching-up especially large in Social, Repair,
  Health, Business and Professional services
• No evidence of significant catch-up in most
  manufacturing industries, including Textiles,
  Apparel, Transportation Equipment, and Furniture

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Summary

• Human capital has large, durable effects on
  employment growth
• Effects particularly large for industries that
  use skill intensively
• Skill-intensive employment grew markedly less in
  cities concentrated in manufacturing
• Greenville County has 26 college grads
• Anderson, Oconee, Spartanburg, and Pickens
  Counties also above average
• 26 of South Carolinas 46 counties have fewer
  college graduates than typical US county
• Areas with high concentration of manufacturing
  and low levels of HK may have particular
  difficulty adjusting to current trends