- The Rise of the Skilled City
Between 1980 and 2000, the population of metropolitan areas where less than 10 percent of adults had college degrees in 1980, grew on average by 13 percent. Among metropolitan areas where more than 25 percent of adults had college degrees, the average population growth rate was 45 percent. For more than a century, in both the United States and Great Britain, cities with more educated residents have grown faster than comparable cities with less human capital.1 There is no consensus, however, on the causes or implications of this relationship.
Why have people increasingly crowded around the most skilled? Why does education seem to be a more and more important ingredient in agglomeration economies? Three disparate, but not incompatible, visions of the modern city offer different answers to these questions. The Consumer City view—cities are increasingly oriented around consumption amenities, not productivity—tells us that skills predict growth because skilled neighbors are an attractive consumption amenity. The Information City view—cities exist to facilitate the flow of ideas—tells us that we should expect cities to be increasingly oriented around the skilled because the skilled specialize in ideas. The Reinvention City view—cities survive only by adapting their economies to new technologies—tells [End Page 47] us that human capital predicts city growth because human capital enables people to adapt well to change.2 Understanding why skills predict city growth will help us determine if cities thrive because of consumption, information, or reinvention.
We use four approaches to address the possibility that the rise of the skilled city is the result of a spurious correlation between local skills and other urban characteristics. First, we show that controlling for a wide range of other factors makes little difference to the impact of local skills on subsequent city growth and that local human capital is essentially unrelated to many of the most important local amenities such as weather variables. Second, we show that the metropolitan-area human capital effect is robust to including metropolitan-area fixed effects. Third, we examine the connection between the number of colleges per capita in 1940 and growth between 1970 and 2000. The pre-World War II number of colleges seems considerably more exogenous than current skill levels, and it still correlates strongly with growth in the modern era.3
Fourth, we examine the timing of skills and growth and test whether skilled workers flock to cities that are growing. Individuals with low education are particularly prone to live in declining cities, but exogenous differences in positive growth rates do not predict changes in the percentage of the population with a college education.4 Reverse causation from growth to education seems to be present only in a handful of declining metropolitan areas and cannot account for much of the relevant effect. Overall, the evidence supports the view that skills induce growth.
Following Jesse Shapiro, we present a framework for understanding the connection between skills and growth.5 The framework tells us that production-led growth should increase nominal wages and housing prices, while consumption-led growth should cause real wages to fall. Rising nominal wages are a sufficient condition for productivity growth, and declining real wages are necessary for the amenity story to be of relevance. [End Page 48]
Our empirical work shows that productivity drives the connection between skills and growth. At the metropolitan level, we find that education levels have a positive impact on future wage and housing price growth. With almost any reasonable set of parameter values, the connection between education and population growth is the exclusive result of rising productivity and has less to do with rising amenity levels. Indeed, real wages may be rising in high-education metropolitan areas, which suggests that consumer amenities are declining—in relative terms in high-skill areas.
At the city level, the results are less clear. In small municipalities within metropolitan areas, low levels of human capital predict urban decline and falling housing prices. At the city level (not at the metropolitan-area level), it is the bottom end of the human capital distribution that matters. The prevalence of high school dropouts predicts...