City Growth and Adjustment: The Role of Human Capital

1. City Growth and Adjustment: The Role of Human Capital by Curtis J. Simon Associate Professor John E. Walker Department of Economics Clemson University

2. 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

3. 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

4. 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

5. 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?

7. 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

14. 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

15. 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

17. 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 Carolina’s 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