1. Human Capital, Local Economic Development, and the Importance of Colleges and Universities
Jaison R. Abel
Cornell ILR School High Road Program
Buffalo, NY – July 15, 2016
The views expressed here are those of the presenter and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System.

2. Questions What is human capital?
Why is human capital important to regional economies?
How can regions increase their human capital?
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3. What is Human Capital?

4. Human Capital
The knowledge and skills people use in their jobs to produce goods and services
Closely tied to educational attainment
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5. Why is Human Capital Important to Regional Economies?

6. Human Capital and Economic Activity
Correlation Between Education and GDP Per Capita
$100,000
$90,000
$80,000
$70,000
New York
Boston
$60,000
Philadelphia
Pittsburgh
GDP Per Capita, 2008
$50,000
$40,000
Erie
$30,000
Buffalo
Flint
One percentage point increase in college attainment associated with 2 percent increase in economic activity
$20,000
$10,000 $0 0%
10%
20%
30%
40%
50%
60%
70%
Human Capital Stock (Share of Population 25+ With a College Degree), 2006
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Source: U.S. Bureau of Economic Analysis, U.S. Bureau of the Census and Moody’s Economy.com 5

7. Why Does this Relationship Hold? than the sum of its parts!
Highly skilled individuals earn higher wages:
High human capital regions have a larger collection of such workers
Spillover effect:
Everyone receives a productivity benefit from being around workers with higher skills, leading to higher wages for all
The whole is greater
than the sum of its parts!
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8. Other Benefits
Regions with higher levels of human capital also tend to have:
More innovation
Faster population and employment growth
More rapid “reinvention”
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9. How Can Regions Increase Their Human Capital?

10. Two Ways Colleges and Universities Can Help to Raise Local Human Capital Levels
Degree Production: increasing the supply of human capital
Educate the local population and draw students into the region, some of whom stay after graduation
 Limited ability to keep local graduates not tied to region
Academic Research: raising the demand for human capital
Local businesses can utilize the skills, knowledge, and technology developed at academic institutions, which attracts start ups and expands high human capital economic activities
 Importance of physical proximity provides anchor to the region
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11. Correlation Between Degree Production and Human Capital
The Supply Side
Correlation Between Degree Production and Human Capital
70%
60%
50%
40%
30%
20%
10% 0%
Ithaca
Boston
New York
Human Capital Stock
Pittsburgh
Philadelphia
Buffalo
Erie
Doubling of degree production associated with 3 to 7 percent increase in human capital
Flint
Degree Production Rate
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Source: IPEDS, U.S. Bureau of the Census 10

12. Correlation Between Research Intensity and Human Capital
The Demand Side
Correlation Between Research Intensity and Human Capital
70%
60%
50%
40%
30%
20%
10% 0%
Ithaca
Boston
New York
Human Capital Stock
Philadelphia
Pittsburgh
Buffalo
Erie
Doubling of research intensity associated with 4 to 9 percent increase in human capital
Flint
Research Intensity
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Source: IPEDS, NSF, U.S. Bureau of the Census 11

13. Type of Human Capital
How Do Colleges and Universities Affect a Region’s Mix of Economic Activities?
Occupational Structure of the Labor Force
% with BA
Life, Physical, and Social Science
Legal
Education, Training and Library
Community and Social Services
Computer and Mathematical
Architecture and Engineering
Business and Financial Operations
Healthcare Practitioners and Technicians
Arts, Design, Entertainment, Sports, & Media
Management
Sales and Related
Protective Service
Office and Administrative Support
Personal Care and Service
Healthcare Support
Installation, Maintenance, and Repair
Production
Transportation and Material Moving
Food Preparation and Serving Related
Construction and Extraction
Building & Grounds Cleaning, Maintenance
TOTAL AMONG ALL OCCUPATIONS
76.3
76.1
73.5
66.9
63.2
60.2
58.8
54.4
51.3
48.8
23.6
19.4
15.5
12.3
8.8
6.8
6.2
6.1
5.9
5.4
5.1
26.4
High Human Capital
Low Human Capital
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Source: U.S. Bureau of the Census 12

14. High vs. Low Human Capital Occupations
Change in Composition of Local Labor Market
High Human Capital
27.1
Low Human Capital
72.9
Average Metro Area
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15. High vs. Low Human Capital Occupations
Change in Composition of Local Labor Market
High Human Capital
27.8
2.4% Increase In
High Human Capital Occupations
Low Human Capital
72.2
One Standard Deviation Increase in Degree Production
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16. High vs. Low Human Capital Occupations
Change in Composition of Local Labor Market
High Human Capital
28.5
5.3% Increase In
High Human Capital
Occupations
Low Human Capital
71.5
One Standard Deviation Increase in Research Intensity
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17. High vs. Low Human Capital Occupations
Change in Composition of Local Labor Market
High Human Capital
29.2
7.7% Increase In
High Human Capital Occupations
Low Human Capital
70.8
One Standard Deviation Increase in Degree Production and Research Intensity
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18. Summary
The amount of human capital in a region is a key ingredient to its economic success
Colleges and universities can help build local human capital stocks by increasing both the supply of and demand for skill
The importance of human capital to regional economies is only likely to increase as the U.S. economy continues to shift away from manufacturing and the distribution of goods to the production of ideas
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19. Human Capital, Local Economic Development, and the Importance of Colleges and Universities
Jaison R. Abel
Cornell ILR School High Road Program
Buffalo, NY – July 15, 2016
The views expressed here are those of the presenter and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System.