Abstract
From 1940 to 1990, a 10% increase in a metropolitan area's concentration of college-educated residents was associated with a 0.8% increase in subsequent employment growth. Instrumental variables esti- mates support a causal relationship between college graduates and em- ployment growth, but show no evidence of an effect of high school graduates. Using data on growth in wages, rents, and house values, I calibrate a neoclassical city growth model and find that roughly 60% of the employment growth effect of college graduates is due to enhanced productivity growth, the rest being caused by growth in the quality of life. This finding contrasts with the common argument that human capital generates employment growth in urban areas solely through changes in productivity.
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