City Growth and Adjustment:City Growth and Adjustment: The Role of Human Capital The Role of Human Capital

bybyCurtis J. SimonCurtis J. Simon

Associate Professor Associate Professor John E. Walker Department of EconomicsJohn E. Walker Department of Economics

Clemson UniversityClemson University

What determines regional growth?What determines regional growth?

Regions grow when their productivity Regions grow when their productivity exceeds productivity elsewhere exceeds productivity elsewhere – Resources are mobile within the U.S.Resources are mobile within the U.S.– Resources, including people, move to Resources, including people, move to

regions offering the highest return regions offering the highest return The same factors that determine The same factors that determine

overall productivity growth affect overall productivity growth affect regional growthregional growth

What determines overall productivity What determines overall productivity growth?growth?

Human capital (HK) is centralHuman capital (HK) is central One measure is formal schoolingOne measure is formal schooling Also includes the level of technology Also includes the level of technology

as manifested in patents, blueprints, as manifested in patents, blueprints, and unwritten form as welland unwritten form as well

Why are Cities Important?Why are Cities Important? Internal effects of HK (e.g, benefit of college Internal effects of HK (e.g, benefit of college

degree) are familiardegree) are familiar Paul Romer and Nobel Laureate Robert Lucas Paul Romer and Nobel Laureate Robert Lucas

have argued that HK has have argued that HK has externalexternal effects as well effects as well Individuals learn faster in presence of people with Individuals learn faster in presence of people with

high levels of HKhigh levels of HK– Abundance of high-HK individuals provides variety of Abundance of high-HK individuals provides variety of

perspectives perspectives – Particularly important in new industries with greater Particularly important in new industries with greater

uncertainty in production techniqueuncertainty in production technique– Larger pool means better matching of talentsLarger pool means better matching of talents

Lucas: cities facilitate generation of HK Lucas: cities facilitate generation of HK externalitiesexternalities– Idea picked up by Edward Glaeser (Harvard), Richard Idea picked up by Edward Glaeser (Harvard), Richard

Florida (Carnegie-Mellon), among othersFlorida (Carnegie-Mellon), among others– But even w/o such externalities, geographic proximity But even w/o such externalities, geographic proximity

facilitates interaction and transactionsfacilitates interaction and transactions

HK externalities are not the whole storyHK externalities are not the whole story

During past quarter century, US employment has During past quarter century, US employment has shifted dramatically in favor of industries that use shifted dramatically in favor of industries that use HK intensivelyHK intensively

Hypothesis: Cities with higher levels of HK more Hypothesis: Cities with higher levels of HK more likely to attract employment in industries that use likely to attract employment in industries that use it intensivelyit intensively– Although labor mobile in the long run, it is costly to hire Although labor mobile in the long run, it is costly to hire

high-HK workers in one city and move them to anotherhigh-HK workers in one city and move them to another Other questions: Other questions:

– Are effects of college graduates picking up presence of Are effects of college graduates picking up presence of local colleges or innovation (patents)?local colleges or innovation (patents)?

– What is the role of manufacturing in generating What is the role of manufacturing in generating employment growth?employment growth?

– Does an industry or sector grow faster in cities where Does an industry or sector grow faster in cities where they are already relatively established?they are already relatively established?

National Industry Employment Growth 1977-97 versus Human Capital

Agr

Banking

Bus Svcs

CommSvcs

Constr

Ed Svcs

Enter Svcs

HealthSvcs

HospSvcs

InsREstate

Mining

PersSvcs

Prof Svcs

RepSvcs

Rtrade

Soc Svcs

Transp Svcs

UtilitiesW Trade

Food

Tobac

Textiles

Appar

LumberFurniture

Printing

Chem

Petrol

Rubber

Leather

StonePmetals

Fmetals Electronics

TranEqu

Instruments

-1

-0.5

0

0.5

1

1.5

2

2.5

3

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

Human Capital (Percent College Grads in 1980)

ImplicationsImplications Employment should grow faster in cities with higher levels Employment should grow faster in cities with higher levels

of HK, particularly sectors that use HK intensivelyof HK, particularly sectors that use HK intensively Recently examined importance of HK for employment Recently examined importance of HK for employment

growth 1977-97 in broad sectors growth 1977-97 in broad sectors – OverallOverall– Skill-Intensive, Rising Industries (15 industries)Skill-Intensive, Rising Industries (15 industries)– Unskilled-Intensive, Rising IndustriesUnskilled-Intensive, Rising Industries– Declining IndustriesDeclining Industries

Human capital measured as % college grads Human capital measured as % college grads Study controls for many other factors:Study controls for many other factors:

– Other measures of human capitalOther measures of human capital Relative size of local colleges and universities Relative size of local colleges and universities Innovation as measured by patents per workerInnovation as measured by patents per worker

– Wage ratesWage rates– Initial size of the cityInitial size of the city– Relative size of manufacturing sectorRelative size of manufacturing sector– Region and climateRegion and climate

Employment Growth 1977-97 and Percent College Graduates: Selected Cities

ALBANY

ANDERSON

ASHEVILLE

ATLANTA

AUGUSTA

BURLINGTON

CHARLESTON

CHARLOTTE-GASTONIA-ROCK HILL

COLUMBIA

FAYETTEVILLE

FLORENCE

GREENSBORO-WINSTON-SALEMGREENVILLE-

SPARTANBURG

HICKORY

JACKSONVILLE (ONSLOW COUNTY)

MACON-WARNER-ROBINS

RALEIGH-DURHAM

WILMINGTON

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

-5 -4 -3 -2 -1 0 1 2 3 4 5

Percent College Grads (Adjusted)

Em

plo

ym

en

t G

row

th (

Ad

juste

d)

Employment Growth 1977-97 in Rising, Skill-Intensive Industries and Percent College Grads: Selected Cities

WILMINGTON

SAVANNAH

RALEIGH-DURHAM

MACON-WARNER-ROBINS

JACKSONVILLE

(ONSLOW COUNTY)

HICKORY

GREENVILLE-SPARTANBURGGREENSBORO-WINSTON-

SALEM

FLORENCE

FAYETTEVILLE

COLUMBIA

CHARLOTTE-GASTONIA-ROCK HILL

CHARLESTON

BURLINGTON

AUGUSTA

ATLANTA

ATHENS

ASHEVILLE

ANDERSON

ALBANY

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

-5 -3 -1 1 3 5 7 9 11

Percent College Grads (Adjusted)

Em

plo

ym

en

t G

row

th (

Ad

juste

d)

Employment Growth 1977-97 and Manufacturing Employment Share: Selected Cities

WILMINGTON

SAVANNAH

RALEIGH-DURHAM

MACON-WARNER-ROBINS

HICKORY

GREENVILLE-SPARTANBURG

GREENSBORO-WINSTON-SALEM

FLORENCE

FAYETTEVILLE

COLUMBIA

CHARLOTTE-GASTONIA-ROCK HILL

CHARLESTON

BURLINGTON

AUGUSTA

ATLANTA

ATHENS

ASHEVILLE

ANDERSON

ALBANY

-0.5

-0.3

-0.1

0.1

0.3

0.5

0.7

0.9

-0.06 -0.04 -0.02 0 0.02 0.04 0.06 0.08

Manufacturing Employment Share (Adjusted)

Em

plo

ym

en

t G

row

th (

Ad

juste

d)

Employment Growth 1977-97 in Rising, Skill-Intensive Industries and Manufacturing Employment Share: Selected Cities

ALBANY

ANDERSON

ASHEVILLE

ATHENS

ATLANTA

AUGUSTA

BURLINGTON

CHARLESTON

CHARLOTTE-GASTONIA-ROCK HILL

COLUMBIA

FAYETTEVILLE

FLORENCE

GREENSBORO-WINSTON-SALEM

GREENVILLE-SPARTANBURG

HICKORY

JACKSONVILLE (ONSLOW COUNTY)

MACON-WARNER-ROBINS

RALEIGH-DURHAM

SAVANNAH

WILMINGTON

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

-0.25 -0.2 -0.15 -0.1 -0.05 0 0.05 0.1 0.15

Manufacturing Employment Share (Adjusted)

Em

plo

ym

en

t G

row

th (

Ad

juste

d)

Percent College Graduates, 2000

Hic

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NC

MS

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MS

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Flo

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tle

Bea

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Mac

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rth

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Wilm

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reen

ville

, NC

MS

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lott

e--G

asto

nia

--R

ock

Hill

, NC

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C

MS

AN

ash

ville

, TN

MS

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lum

bia

, SC

MS

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Atl

anta

, GA

MS

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ens,

GA

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0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

1 10 19 28 37 46 55 64 73 82 91 100 109 118 127 136 145 154 163 172 181 190 199 208 217 226 235 244 253 262 271

Employment Share in Manufacturing, 1997

AN

DER

SON

JOH

NSO

N C

ITY-

KIN

GSP

OR

T-B

RIS

TOL

ATH

ENS

GR

EEN

VILL

E-SP

AR

TAN

BU

RG

AU

GU

STA

CH

ATT

AN

OO

GA

CLA

RK

SVIL

LE-H

OPK

INSV

ILLE

FLO

REN

CE

ALB

AN

Y

MA

CO

N-W

AR

NER

-RO

BIN

S

NA

SHVI

LLE

KN

OXV

ILLE

(OA

K R

IDG

E)

SAVA

NN

AH

MEM

PHIS

ATL

AN

TAC

OLU

MB

IAC

HA

RLE

STO

N

0

0.1

0.2

0.3

0.4

0.5

0.6

1 12 23 34 45 56 67 78 89 100 111 122 133 144 155 166 177 188 199 210 221 232 243 254 265 276 287 298 309

Effect of 5-percentage point increase in Percent Effect of 5-percentage point increase in Percent College Graduates on Employment GrowthCollege Graduates on Employment Growth

Typical city grew by 75% over 1977-97 periodTypical city grew by 75% over 1977-97 period– would have grown 15 percentage points morewould have grown 15 percentage points more

Rising, skill-intensive employment in typical city Rising, skill-intensive employment in typical city grew by 145% over 1977-97 period grew by 145% over 1977-97 period – would have grown 25 percentage points morewould have grown 25 percentage points more

Even employment in unskilled-intensive and Even employment in unskilled-intensive and declining industries aided by presence of college declining industries aided by presence of college graduatesgraduates– Effects are smaller, as one might expectEffects are smaller, as one might expect

Other FindingsOther Findings

Effects of college grads do NOT merely capture Effects of college grads do NOT merely capture presence of college or patent innovation presence of college or patent innovation – 4-year college employment share and patents per worker 4-year college employment share and patents per worker

both have positive, significant effects as well, especially in both have positive, significant effects as well, especially in rising, skill-intensive industriesrising, skill-intensive industries

Having larger sector at start of period helps, but Having larger sector at start of period helps, but there are “diminishing returns” to having a head there are “diminishing returns” to having a head start, suggesting that lagging cities “catch up” start, suggesting that lagging cities “catch up” over timeover time– Catching-up especially large in Social, Repair, Health, Catching-up especially large in Social, Repair, Health,

Business and Professional servicesBusiness and Professional services– No evidence of significant catch-up in most manufacturing No evidence of significant catch-up in most manufacturing

industries, including Textiles, Apparel, Transportation industries, including Textiles, Apparel, Transportation Equipment, and FurnitureEquipment, and Furniture

Percent College Degree or Better, 2000 CensusSouth Carolina Counties

Beaufort CountyRichland County

Charleston CountyGreenville County

Lexington CountyDorchester County

York CountyGeorgetown CountyAiken County

Greenwood CountyHorry CountyPickens County

Florence CountySpartanburg CountyOconee County

Orangeburg CountyKershaw County

McCormick CountyAnderson CountySumter County

Bamberg CountyNewberry County

Calhoun CountyBerkeley County

Darlington CountyAbbeville County

Edgefield CountySaluda CountyCherokee CountyFairfield CountyLaurens CountyColleton CountyBarnwell CountyClarendon CountyWilliamsburg County

Lancaster CountyMarion CountyHampton County

Union CountyChester CountyChesterfield CountyAllendale County

Lee CountyDillon County

Jasper CountyMarlboro County

0 0.05 0.1 0.15 0.2 0.25 0.3 0.35

Marlboro

County

Unio

n

County

Colle

ton

County

Darlin

gto

n

County

McC

orm

ick

County

Horr

y

County

Gre

envill

e

County

SummarySummary Human capital has large, durable effects on Human capital has large, durable effects on

employment growthemployment growth– Effects particularly large for industries that use skill Effects particularly large for industries that use skill

intensivelyintensively Skill-intensive employment grew markedly less in Skill-intensive employment grew markedly less in

cities concentrated in manufacturing cities concentrated in manufacturing Greenville County has 26% college grads+Greenville County has 26% college grads+ Anderson, Oconee, Spartanburg, and Pickens Anderson, Oconee, Spartanburg, and Pickens

Counties also above averageCounties also above average 26 of South Carolina’s 46 counties have fewer 26 of South Carolina’s 46 counties have fewer

college graduates than typical US countycollege graduates than typical US county Areas with high concentration of manufacturing Areas with high concentration of manufacturing

and low levels of HK may have particular difficulty and low levels of HK may have particular difficulty adjusting to current trendsadjusting to current trends