Monday, 14 January 2013

Does Human Capital Tend to Cluster in Center Cities or the Suburbs?

It's now conventional wisdom that human capital (what economists call educated people) is a key factor in the growth of cities and metro regions. Cities are engines of economic development, and the skilled people are the high-powered fuel that drives them.
Most studies of the role of human capital in regional economic growth track its effects on and across metro regions. But metros vary widely in size, shape, and spatial and demographic compositions; human capital doesn't always cluster in the same places at the same densities. The revitalization of the urban center in cities has fueled in-migrations of more skilled and affluent people. Other cities still suffer from the proverbial "hole in the donut" effect, with their more educated, higher income populations spread out across their suburbs while their urban centers lag.
Studies found that suburban human capital is important to metros of all sizes, with the percentage of college grads in the suburbs having a positive effect on their income levels and housing values across the board. Suburban human capital is especially important in smaller and medium-sized metros, those with fewer than one million people.
But as metros increase in size, human capital in the center city plays a bigger role. For example, metros with more than three million people have roughly twice the density of college grads than those between one and three million — 443 versus 227 college grads per square kilometer on average. The percentage of college grads in the center city plays a greater economic role in large metros (those with more than one million people), especially with regard to housing values. But, it has no statistically significant effect on either income or housing values in small and medium size metros.
This makes intuitive sense. As metros grow larger and more congested and commutes become more arduous, higher-skilled people seek out more central locations to live in. A post on the blog Old Urbanist highlights a tradeoff between location and commute times, citing a classic study which argues that "individuals and firms mutually co-locate in response to congestion costs, and thus reshape those costs." The theory thus implies, as the post makes clear, that "commutes beyond a certain length of time are undesirable despite any other advantages that might be gained from the location (e.g. housing cost, school quality, taxation level, crime)." The post also points out, drawing from data on the New York metro area, that commutes tend to level off at about 30 minutes. When metros get large and congested, a sort of "Manhattan" or "Brooklyn Effect" sets in, as higher income, more affluent households seek more central locations, increasing the concentration of human capital in the center city.
For all the importance economists and urbanists accord to human capital, surprisingly few efforts have been made to examine its workings at a granular level. Not just academics but place-makers of all stripes — planners, politicians, developers — need to have a better understanding of where and why human capital clusters — and of the different roles that those different kinds of clusters play in economic development.

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