Skills in the city

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 four primary conclusions. First, the increase in productivity associated with agglomeration, as measured by the urban wage premium, is shown to be larger for workers with stronger cognitive skills. A one standard deviation increase in cognitive skills from the mean is associated with an increase of roughly one-fifth in the elasticity of wage with respect to MSA population. Second, the urban wage premium is also larger for a worker with strong people skills. Comparing a worker deemed able to interact well with others with one who is not, the interactive worker’s population elasticity of wage is half again larger. Clearly, soft skills are an essential aspect of agglomeration economies. Third, 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. Fourth, turning to the issue of the allocation of skills to cities, we find that mean skill levels increase modestly with city size. 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.