PRODUCTIVITY AND THE DENSITY OF HUMAN CAPITAL* |
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| Authors: | Jaison R. Abel Ishita Dey Todd M. Gabe |
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| Affiliation: | 1. Federal Reserve Bank of New York, Research and Statistics Group, Regional Analysis Function, 237 Main Street, Suite 1200, Buffalo, NY 14203. E‐mail: jaison.abel@ny.frb.org;2. Department of Housing and Consumer Economics, University of Georgia, 111 Dawson Hall, 305 Sanford Dr, Athens, GA 30602. E‐mail: idey@uga.edu;3. School of Economics, University of Maine, 5782 Winslow Hall, Orono, ME 04469. E‐mail: todd.gabe@umit.maine.edu |
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| Abstract: | 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 2–4 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. These patterns are particularly pronounced in industries where the exchange of information and sharing of ideas are important parts of the production process. |
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