Cities, Skills, and Regional Change

One approach to urban areas emphasizes the existence of certain immutable relationships, \nsuch as Zipf's or Gibrat's Law. An alternative view is that urban change \nreflects individual responses to changing tastes or technologies. This paper examines \nalmost 200 years of regional change in the U.S. and finds that few, if any, growth relationships \nremain constant, including Gibrat's Law. Education does a reasonable job \nof explaining urban resilience in recent decades, but does not seem to predict county \ngrowth a century ago. After reviewing this evidence, we present and estimate a simple \nmodel of regional change, where education increases the level of entrepreneurship. \nHuman capital spillovers occur at the city level because skilled workers produce more \nproduct varieties and thereby increase labor demand. We find that skills are associated \nwith growth in productivity or entrepreneurship, not with growth in quality of life, at \nleast outside of the West. We also find that skills seem to have depressed housing supply \ngrowth in the West, but not in other regions, which supports the view that educated \nresidents in that region have fought for tougher land-use controls. We also present evidence \nthat skills have had a disproportionately large impact on unemployment during \nthe current recession.