City size and skill intensity

Many have theorized that the productivity of human capital increases with city size. If this were true, one would expect production in large cities to be more skill intensive than in small cities, even within industry. This paper uses data on the occupational mix at establishments to test whether skill intensity is greater in large cities. Establishments in metropolitan areas with population above two million use a more skill intensive mix of workers than comparable establishments in metropolitan areas with population below one million. The differences in skill intensity are not the same in all industries; establishments in relatively skill intensive industries are even more skill intensive in large MSAs. These results support theories that suggest that the productivity gains from agglomeration are larger for skilled labor than unskilled labor.

Research highlights► Firms are more skill intensive in large cities than in small cities ► This suggests that agglomeration effects increase human capital productivity ► The differences in skill intensity across city size groups vary by industry ► These differences are largest in skill intensive industries