Smart Cities: Quality of Life, Productivity, and the Growth Effects of Human Capital

Abstract

From 1940 to 1990, a 10 percent increase in a metropolitan area's concentration of college-educated residents was associated with a .8 percent increase in subsequent employment growth. Instrumental variables estimates support a causal relationship between college graduates and employment growth, but show no evidence of an effect of high school graduates. Using data on growth in wages, rents and house values, I calibrate a neoclassical city growth model and find that roughly 60 percent of the employment growth effect of college graduates is due to enhanced productivity growth, the rest being caused by growth in the quality of life. This finding contrasts with the common argument that human capital generates employment growth in urban areas solely through changes in productivity.

Human capital, higher education institutions, and quality of life

“…The second column reports that the share of adults with a college degree also has a significantly positive effect on the log price index with a coefficient of 0.572. This echoes previous findings by Rauch (1993), Shapiro (2006), and Dalmazzo and Blasio (2007a) that the local human capital level increases the cost of living in an area. The effect of the human capital stock on quality of life is equal to the effect on log prices minus the effect on log wages.…”

“…This is a 47 percent reduction from the effect on quality of life reported in the third column, but the effect is still meaningful. This result supports findings in Shapiro (2006) that an educated populace is associated with increased quality of life. Furthermore, this effect is not simply due to college towns that simultaneously increase the stock of human capital and offer higher quality of life.…”

“…3 Berry and Glaeser (2005) and Waldorf (2009) also suggest that the existing stock of human capital is especially important in attracting educated in-migrants. Furthermore, as new workers move in, they compete with existing residents for housing and bid up housing prices (Rauch 1993;Shapiro 2006;Dalmazzo and Blasio 2007a). Shapiro (2006) suggests that the local human capital level increases the implicit value of an area's consumption amenities; i.e., the stock of human capital makes an area a more desirable place to live and increases the quality of life.…”

“…Shapiro (2006) suggests that the local human capital level increases the implicit value of an area's consumption amenities; i.e., the stock of human capital makes an area a more desirable place to live and increases the quality of life. Shapiro (2006) estimates that 40 percent of the growth effects of human capital are due to increased quality of life.…”

Education, experience, and urban wage premium

“…The observation has led to a literature dealing with 'skilled cities' or 'smart cities' (Glaeser and Saiz, 2004;Shapiro, 2006;Combes et al, 2008;Winters, 2011). The urban concentration of highly educated explains a large part of the observed urban -rural wage gap.…”