Richard Florida
by Richard Florida
Sun Jul 5th 2009 at 1:09pm UTC

Density Matters

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.

18 Responses to “Density Matters”

  1. Critical Mass and Innovation | Lies My Gantt Chart Told Me Says:

    [...] Sunday, July 5, 2009 By jarie Over at Creative Class, they have an interesting post on Density and Creativity. Instead of density, I like to think of it as critical mass — that mix of talent, ideas and [...]

  2. bennett Says:

    How come this article doesn’t reference TROCC?

  3. Wendy Says:

    Hmmm…I wonder if some comparative-global research is needed here too. Canadian and European cities are typically denser than American ones, and yet productivity is typically lower.

    There are likely broader policy and cultural components to consider as well.

  4. Mike L. Says:

    Wendy has a good point:
    http://www.citymayors.com/statistics/largest-cities-density-125.html
    How do these relate to “density-productivity” theory?

  5. Brian Knudsen Says:

    I don’t think it is necessary – or desirable – to lump all of the cities of the world together, and to then look for density effects. It’s standard practice to pick a country – say the US – and to then examine relationships among the cities within it. That is what we did in the density paper that I coauthored and published with Richard, Kevin, and Gary Gates. Possibly useful would be to do a separate density study of strictly European cities. If the results were similar to the previous US study, you’d have additional evidence of a density effect. European and American cities are different enough that they merit their own studies, as opposed to lumping them all in together. This however, does not undermine findings regarding density.

  6. Tory Says:

    Cause and effect problem. Does density increase productivity? Or do cities high-skill, high-productivity cluster industries attract people willing to live in costly density with its hassles? Would NYC be less productive if it had the same jobs/industries but was less dense? The fact that the hedge fund industry centered on CT rather than NYC implies that maybe not. Would Silicon Valley be more productive if they rolled up the whole tech industry and its employees and packed them in downtown SF? I doubt it.

    I do believe connections matter, but that’s a factor of (density x mobility), not just density alone. The question is not how many people you can access within a given distance, but a given *travel time*. A lower density city with fast mobility can actually enable more connections than a higher density city with very poor mobility. Details in this post, including a comparison of Manhattan and Houston: “Density, Vibrancy, and Opportunity Zones” http://houstonstrategies.blogspot.com/2006/05/density-vibrancy-and-opportunity-zones.html

  7. Tory Says:

    Agreed: economic growth and success will lead to density increases (definitely visible in Austin and Houston). And if density is kept artificially low (vs. market desires) via regulation, that might inhibit the productivity gains. But would arbitrarily forced density increases, via regulations like urban growth boundaries, lead to productivity increases? That I doubt. Portland might be an interesting case study, since they have done the most to force density increases independent of economic or population growth. Maybe compare them to Austin, which is a similar size city that has not (relatively speaking). But it would be hard to tease out other variables like industry mix, which clearly impact productivity.

    And there’s another problem confounding such study: regulations that force density and increase costs also drive away lower skilled and lower productivity facilities, industries, and jobs – thus falsely increasing average productivity. But that’s not really a net gain for the region or the country, since jobs were just displaced, and since they might even be outsourced abroad and out of the country, it could be a substantial net loss. This factor might also be mucking up the data in the study you’re referencing.

  8. Deep Says:

    Yes, New York City would be less productive if it was not as dense as it is. What is often forgotten is that New York is more than Wall Street. The density of the city makes it home to a multitude of industries from arts, high tech, media, etc. Which is why the city is not collapsing in the face of the current economic crises. The city enables people to change careers without moving. If New York was less dense, it would have a less diversifed economy, thus a less productive and would probably be facing an economic situation that would be more dire.

    Why wouldn’t Silicon Valley be more productive if it was centered in Downtown San Francisco? Afterall San Francisco itself is home to an array of financial institutions, biotech firms where UCSF is a major incubator for the industry, architechtural firms, and other small businesses. The economic importance of San Francisco has even helped nearby Oakland revitalize by benefiting from SF’s spillover effects. The city has even become an extension of Silicon Valley. Which is not a surprise, given that it is quite common for IT workers to live in SF and commute down to the Valley.

    It is not just density of similar entities that matter, but density of diversity that is really key in the information economy. It is why SF and NYC are still maintaining an appeal to people despite having a high cost of living. It is also why cities that like Philadelphia and Oakland that were once left for dead are now making a comeback, by benefiting from being close proximity to them.

  9. RS Says:

    Deep,

    If what you are saying is true… then the most “dense” cities should be more productive across the board. In other words, the worlds most dense places should always be the most productive.

    The problem is that this is not alwyas the case. Many of the densest cities in the world (think Mumbai; India, kolkata, India; Karachi, Pakistan; Lagos, Nigeria; Chennai, India; Bogata, Columbia; Lima, Peru; Kinsaha, Congo; Manila, Philippines; Tehran, Iran; Jakarta, Indonesia; Ho Chi Minh City, Vietnam; Mexico city, Mexico; Saul Paulo, Bazil) are not more productive than many less dense places like: NY, NY; San Fran, CA; London, UK; Paris, FR; ect.

    So while density may be important, it is not the whole story for sure. Thus, moving NY to a less dense place may not change anything. I think its near certain that “economic density” matters… but the point of this article was population density and I think that Tory’s time comment holds some merit. Furthermore, I also think the question of whether or not imposing density on a place is a positive policy is worthy of consideration. Perhaps the density of places is some type of natural equilibrium that ought not be interfered with.

  10. Michael Wells Says:

    Density has definite advantages in a creative class city. Going back to Jacobs work, density gives you exposure and access to materials, talent, etc. so that it’s easier to do business or arts affordably. You can live real cheap in North Dakota, but you have to import almost everything. Some questions would be:
    • How many different kinds of people, ideas, situations, businesses would you bump into in a week? A lot of innovation comes from chance encounters.
    • How easy is it to assemble a team, pull together a meeting, get actors for a reading or musicians for a session?
    • How many suppliers can you easily and cheaply access, especially if you need to shop for small quantities and aren’t sure exactly what you need?
    • How easy is it to hire the skills you want from the local talent pool?
    • How easy is it to get access to different peoples, cultures, etc?

    There may be limits to how much density you need for this, but some density is required.

  11. Tory Says:

    With the exception of “chance encounters” – which I think are overrated compared to how most people really live their professional lives (mostly pre-arranged meetings or events – ‘chance/serendipity’ today is all about who or what you discover on the Internet) – all of those are related travel time rather than distance, so density x mobility is what really matters, not just density. It’s not how many people I can access in 30 miles, but 30 minutes – which might be 3 miles in NYC, 10 miles in LA, or 25 miles in Houston – and remember the potential circular area reached by each of those distances is pi x r^2 (which would be multiplied by density, of course).

    > “Furthermore, I also think the question of whether or not imposing density on a place is a positive policy is worthy of consideration. Perhaps the density of places is some type of natural equilibrium that ought not be interfered with.”

    Hear, hear!

  12. Deep Says:

    RS,

    You have to compare like with like, meaning comparing American cities with other American cities, Indonesian cities with other Indonesian cities. Every city comes in the context of their own country. Jakarta is not as productive as New York because the Indonesian economy is not as productive as the United States. However in the context of Indonesia, Jakarta is the most productive city in the country. For most educated Indonesians, Jakarta is where they want to be if they were to stay in the country.

    When we look at growth in different parts of the world, we are seeing more growth in the city centers. Even in the outer slums of most developing cities, there is more opportunity to be had than in the villages in the hinterlands. Simply put, there are more chances to interact with other individuals and develop economic opportunities.

    An urban growth boundary is more of a positive than negative. Preserving density and controlling outward growth not only protects the city center from deterioration, but allows the suburbs to be integrated with not only the city but with one another. Such policies are no more imposing as the policies that supported population dispersion. The American suburb is actually quite unnatural, given they would not have been created were not for the construction of the US highway system, subsidizing of mortgage interests, and redlining policies that blocked capital investments into city centers.

  13. Michael Wells Says:

    Tory,

    We may live different lives but I have chance encounters on the street, in Starbucks, driving a new route, anywhere. If serendipity were limited to the Internet we’d be in a very poor place.

    Density encourages smaller diverse businesses like Winks Hardware which sells mostly to contractors but is open to everyone and has thousands of things unavailable at Home Depot, or Powells Books where I can browse and find most anything in print used. Yes, I can buy used on Amazon, but I can’t look at it beforehand, I have to pay shipping and wait several days for it.

    If I have to do five errands and can find them within a 1 mile radius in Portland and walk between some of them, or a 20 mile radius in Houston where I need to drive and park every time, we’re not comparing one 30 minute trip, but several 30 minute trips.

  14. Michael Wells Says:

    People consistently think of Oregon’s land use laws and urban growth boundaries as focused exclusively on creating density and building the urban core. That’s one function but the law’s original purpose and still major focus is protecting farmland (and timberland in Oregon). When the local governments meet to expand urban growth boundaries, the discussion is on what’s outside of them, not what’s inside.

  15. Tory Says:

    Michael: I believe in serendipity, but in Houston I can certainly drive to a crowded bookstore, Starbucks, or similar places and meet people. The difference we’re talking about here is meeting random people on the street or on transit (high density, assuming you’re not in a cab) vs. not meeting them while driving a car (lower density). That seems like a relatively insignificant portion of professional connections.

    On the other hand, I think most professional connections are pre-arranged meetings, like lunches or dinners, or events (where you do meet chance people once you’re there). In Houston with its freeway network, it’s no problem arranging a lunch meeting with someone who works 20+ miles away. Or drawing a crowd from a 20+ mile radius to a professional event. In Manhattan, that could be problematically time consuming if they’re even 2 miles away, depending on transit proximity/speed and/or cab availability, speed, and cost tolerance (i.e. would I have a casual lunch with a professional colleague/friend if it requires a $20 round trip cab ride? What potentially serendipitous connection have I lost if I don’t? Might we have become partners in a new business venture? Who knows?).

  16. RS Says:

    First, I am do not mean to suggest that density does not matter because overwhelming evidence suggests it does. What I am saying is that I dont think the relationship is linear or with an exponent larger than one in all cases. Thus, increasing density might not do anything (or very little) for productivity at all… once a certain density threshold is met.

    I guess I am arguing that the relationship between productivity gains and density is probably logistic (or logarithmic) like in nature. Once, some threshold is met… i doubt the marginal impact on productivity of an increase in density is much greater than zero.

    Otherwise, it seems like everyone on the globe would have moved to one place, being that cities have been evolving for thousands of years.

    I cant recall where but I have seen studies of social network sites suggesting that “usable” networks (the friends you actually comunicate with) are much smaller than the total number of perosons included the “fried” network. As such, “real” social networks are actually quite small. How many people can one person meaningfully interact with? So once the network gets to a certain level, addional contacts are only marginally advantageous.

    On a second matter, to suggest that cross country comparisons are not useful is to suggest that the most relevant unit of analysis in urban ecosystems is the nation state. With Richards work on mega regions and the fact that world wide city systems follow a common distribution (zipf) through time… I feel international comparisons of cities are not only ok… they are necessary.

    There is much evidence to suggest that increased globalization makes the city size disribution global in nature… not national. Thus, comparing cities across countries is the appropriate comparions to make. Otherwise, the argument is that density is important only in certain countries and not in others. Which is to say that density is not always positively related to productivity.

    I guess, I am thinking that if you cannot compare density and productivity relationships across countries, then your implicitly assuming that other (nation specific) factors are driving productivity, not density.

  17. Deep Says:

    RS,

    Of course an individual will only have relationships with a handful of people, whether they live in the suburbs of Houston or in New York. What density does for the individual(or a company) is it gives them access to a diversity of resources, which allows them to be productive. New York and SF are surviving the economic downturn, because they have a multitude of industries. People can change careers in these centers much more easily than in the suburbs.

    I am not saying that density is important to certain countries and not in other countries. They are important to all countries. According the UN, the majority of the world’s population now resides in cities. Cities play a bigger role in the global economy than ever before. I agree that certain global cities can be compared with one another, like New York, London, and Tokyo.

    However it is no coincidence that we compare New York with London and Tokyo, and not with Sao Paulo and Schenzen. The American economy has more in common with the British and Japanese economies than it does with the Brazilian and Chinese economies. We also have to look at the context of a country, had China stayed on the Maoist path, Schenzen would still be a small fishing village. Given that Schenzen lies just north of Hong Kong, the British handing over Hong Kong to China, also played an important role in the city’s growth.

    My point is that there is a correaltion between density and productivity, this applies to all cities. However when comparing across the globe, national factors need to be taken in serious consideration.

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