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Skills in the City

by Marigee Bacolod, Bernardo S. Blum, and William C. Strange. Reading for Tuesday, 24 April.

This paper documents the allocation of skills across cities and estimates the impact of agglomeration on the hedonic prices of worker skills. In contrast to nearly all prior work, the paper focuses directly on fundamental worker skills – including a wide range of cognitive, people, and motor skills -- rather than on worker education. To identify these skills, we match occupation skill requirements as defined by the Dictionary of Occupational Titles with data from the Census and the National Longitudinal Survey of Youth.

The paper reaches three primary conclusions. First, the increase in productivity associated with agglomeration, as measured by the urban wage premium, is shown to be largest for workers with strong cognitive and people skills. Second, motor skills and physical strength are not rewarded to a greater degree in large cities. Urbanization thus enhances thinking and social interaction rather than physical abilities. These results are robust to a variety of estimation strategies, including using NLSY variables that control for additional elements of worker quality and also to a worker-MSA fixed effect specification. Third, turning to the issue of the allocation of skills to cities, we find that mean skill levels are surprisingly uniform across cities of different sizes.  Large cities are only slightly more skilled than are small cities. Cities of different sizes are closer to equal in their skill endowments than in either their education levels or their breakdown by occupation or industry.

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