Jane Jacobs and Robert Lucas long ago argued that the clustering and density of talented people is a key driver of innovation and economic growth. A new study, “Productivity and the Density of Human Capital,” by Jaison Abel of the NY Fed, Ishita Dey of the University at Buffalo, and Todd M. Gabe of the University of Maine, provides clear evidence of density’s effects on regional economic output (pointer from Kevin Stolarick).
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. Using new measures of output per worker for U.S. metropolitan areas along with two measures of density that account for different aspects of the spatial distribution of population, we find that a doubling of density increases productivity by 10 to 20 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 that is one standard deviation below the mean level realize around half of the average productivity gain, while doubling density in metropolitan areas with a human capital stock that is one standard deviation above the mean level yields productivity benefits that are about 1.5 times larger than average.
To download the study click here.