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Productivity and the density of human capital

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

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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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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  1. Glaeser, Edward L & Mare, David C, 2001. "Cities and Skills," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 316-42, April.
  2. Gerald Carlino & Satyajit Chatterjee & Robert Hunt, 2006. "Urban density and the rate of invention," Working Papers 06-14, Federal Reserve Bank of Philadelphia.
  3. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent & Roux, Sébastien, 2008. "Estimating Agglomeration Economies with History, Geology, and Worker Effects," CEPR Discussion Papers 6728, C.E.P.R. Discussion Papers.
  4. Gerald A. Carlino & Richard Voith, 1989. "Accounting for differences in aggregate state productivity," Working Papers 90-1, Federal Reserve Bank of Philadelphia.
  5. Michael Storper & Anthony J. Venables, 2003. "Buzz: Face-to-Face Contact and the Urban Economy," CEP Discussion Papers dp0598, Centre for Economic Performance, LSE.
  6. Rappaport, Jordan, 2007. "Moving to nice weather," Regional Science and Urban Economics, Elsevier, vol. 37(3), pages 375-398, May.
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  8. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent, 2004. "Spatial Wage Disparities: Sorting Matters!," CEPR Discussion Papers 4240, C.E.P.R. Discussion Papers.
  9. 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.
  10. Glaeser, Edward L. & Kahn, Matthew E., 2004. "Sprawl and urban growth," 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 56, pages 2481-2527 Elsevier.
  11. Jordan Rappaport, 2006. "A productivity model of city crowdedness," Research Working Paper RWP 06-06, Federal Reserve Bank of Kansas City.
  12. Edward L. Glaeser & Albert Saiz, 2003. "The Rise of the Skilled City," Harvard Institute of Economic Research Working Papers 2025, Harvard - Institute of Economic Research.
  13. Moretti, Enrico, 2004. "Estimating the social return to higher education: evidence from longitudinal and repeated cross-sectional data," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 175-212.
  14. Melo, Patricia C. & Graham, Daniel J. & Noland, Robert B., 2009. "A meta-analysis of estimates of urban agglomeration economies," Regional Science and Urban Economics, Elsevier, vol. 39(3), pages 332-342, May.
  15. Christopher H. Wheeler, 2004. "Wage inequality and urban density," Journal of Economic Geography, Oxford University Press, vol. 4(4), pages 421-437, August.
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