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

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

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

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

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?

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 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

Effect of 5-percentage point increase in Percent College Graduates on Employment Growth  Typical city grew by 75% over period –would have grown 15 percentage points more  Rising, skill-intensive employment in typical city grew by 145% over 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

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

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