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Productivity and the density of human capital

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  • Jaison R. Abel
  • Ishita Dey
  • Todd M. Gabe

Abstract

We estimate a model of urban productivity in which the agglomeration effect of density is enhanced by a metropolitan area's stock of human capital. Estimation accounts for potential biases due to the endogeneity of density and industrial composition effects. Using new information on output per worker for U.S. metropolitan areas along with a measure of density that accounts for the spatial distribution of population, we find that a doubling of density increases productivity by 2 to 4 percent. Consistent with theories of learning and knowledge spillovers in cities, we demonstrate that the elasticity of average labor productivity with respect to density increases with human capital. Metropolitan areas with a human capital stock one standard deviation below the mean realize no productivity gain, while doubling density in metropolitan areas with a human capital stock one standard deviation above the mean yields productivity benefits that are about twice the average.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 440.

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Date of creation: 2010
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Handle: RePEc:fip:fednsr:440

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Keywords: Urban economics ; Labor productivity ; Labor market ; Population ; Demography;

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  1. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
  2. Jordan Rappaport, 2004. "Moving to Nice Weather," Econometric Society 2004 North American Summer Meetings 188, Econometric Society.
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  5. Christopher H. Wheeler, 2004. "Wage inequality and urban density," Journal of Economic Geography, Oxford University Press, vol. 4(4), pages 421-437, August.
  6. Carlino, Gerald A. & Chatterjee, Satyajit & Hunt, Robert M., 2007. "Urban density and the rate of invention," Journal of Urban Economics, Elsevier, vol. 61(3), pages 389-419, May.
  7. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon & Sébastien Roux, 2008. "Estimating Agglomeration Economies with History, Geology and Worker Effects," Working Papers 2008-22, Centre de Recherche en Economie et Statistique.
  8. Michael Storper & Anthony J. Venables, 2004. "Buzz: face-to-face contact and the urban economy," Journal of Economic Geography, Oxford University Press, vol. 4(4), pages 351-370, August.
  9. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent, 2008. "Spatial wage disparities: Sorting matters!," Journal of Urban Economics, Elsevier, vol. 63(2), pages 723-742, March.
  10. Gerald A. Carlino & Richard Voith, 1989. "Accounting for differences in aggregate state productivity," Working Papers 90-1, Federal Reserve Bank of Philadelphia.
  11. Enrico Moretti, 2002. "Estimating the Social Return to Higher Education: Evidence From Longitudinal and Repeated Cross-Sectional Data," NBER Working Papers 9108, National Bureau of Economic Research, Inc.
  12. Duranton, Gilles & Puga, Diego, 2004. "Micro-foundations of urban agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 48, pages 2063-2117 Elsevier.
  13. Glaeser, E.L. & Mare, D.C., 1994. "Cities and Skills," Working Papers e-94-11, Hoover Institution, Stanford University.
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Cited by:
  1. Jaison R. Abel & Richard Deitz, 2012. "Agglomeration and job matching among college graduates," Staff Reports 587, Federal Reserve Bank of New York.

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