Skills and the City: Who Makes Your City Run?

Much has been made of late of the importance of large cities to countries’ competitiveness and economic futures. The World Bank’s World Development Report, Entering the 21st Century, described cities as the “engines of growth” for countries. Closer to home, the City of Toronto’s Agenda for Prosperity notes that:

Toronto and Canada’s other major cities are the engines of regional, provincial and national economic growth. Their ability to generate wealth is critical to the future prosperity of all Canadians.

To be sure, there is substance to such claims. One of the facts about cities is that average wages and incomes in large cities are generally far higher than average wages and incomes in smaller cities and towns. This wage difference reflects the fact that worker productivity is generally much higher in large cities. Also, in the developed world, the majority of individuals live in cities. In the US, for instance, 68 percent of Americans occupy 1.8 percent of the total land area. With the service sector now the dominant source of employment and income in developed economies, the buzz is all about the city as a creative hub.

What does all of this mean for the future of large and small cities? Will governments focus on large cities and let smaller cities and towns languish and ultimately die? Would we all be better off living in large cities? Is there something smaller cities can do to remain prosperous?

In a recent series of papers, Will Strange and Bernardo Blum of the Business Economics group at Rotman and Marigee Bacolod of the University of California at Irvine dig underneath the simple averages and superficial facts about cities to look at who it is that selects into living in large cities and who really gains from this choice. They have some surprising results and their work sheds light on how different kinds of cities might compete and prosper. (A link to these papers can be found on the RIIB home page.)

In their study Bacolod, Blum and Strange identify the skill sets that different occupations require and use this information to infer the skills that individuals in these occupations possess. They distinguish 3 types of skills: cognitive skills – skills at doing calculations, problem solving, following instructions and reading/writing – people skills – skills at dealing with other people, accepting responsibility, influencing others – and motor skills – skills at handling and manipulating equipment, driving, operating machinery and precision work. They also obtain measures of individuals’ inherent abilities or intelligence. Their aim is to investigate the skill and intelligence distributions of individuals living in large and small cities and the returns to different sorts of skills and intelligence in large and small cities.

What Bacolod, Blum and Strange find is that the superstars of both cognitive skills and people skills are more likely to live in larger cities than in smaller ones. This is not surprising given they also find that the returns, as measured by wages, to cognitive and people skills are higher in large cities. Those individuals with the highest innate ability / intelligence are also more likely to live in large cities as the return to intelligence is also higher there. The higher returns are a result of the fact that large cities yield greater opportunities to learn from others and to specialize in jobs that best exploit one’s skills and abilities. High end cognitive and people skill individuals are best positioned to take advantage of these opportunities and so they locate in large cities.

While these findings support the standard view of cities as engines of growth and creative hubs in the new economy, there’s much more to the story of cities. Bacolod, Blum and Strange find that those individuals with little in the way of people skills are also more likely to live in large cities. And before you say, “of course”, this isn’t because scientists, engineers, economists and mathematicians – the high cognitive skills types – have no people skills to speak of. As it turns out, people with low measures for basic intelligence / ability are more likely to live in large cities also. In general, Bacolod, Blum and Strange find that large cities are quite heterogeneous places when it comes to the distribution of skills and intelligence – large cities have a bigger share of the population at either end of the distribution -- while smaller cities are much more homogeneous places, having fewer of both the very high end people and the low end individuals.

If large cities are places that generate high returns to basic intelligence, people skills and cognitive skills, why do we see this greater disparity in skills and abilities in large cities? Why are individuals at the bottom end of the distribution more likely to live in large cities? Recall that the way that the skills and intelligence superstars reap large rewards from their talents is by being highly specialized and spending time learning from others. To be able to do this, these individuals need someone to provide services like childcare, food preparation, cleaning, repair work, transportation and much more. A city can’t be prosperous and an engine of growth having only the skills and intelligence all-stars. These individuals can only reap the returns from being creative if others are in the trenches doing the work the all-stars don’t have time for. This is an important message that must not be lost in the debate on city structures. Large cities must make room for a very diverse set of people – blue collar, white collar and no collar – if they are to prosper. All are important for the city to be an engine of growth.

The other part of the story from Bacolod, Blum and Strange is that the return to motor skills is actually higher in smaller cities than in large ones. For motor skills, perhaps the value of learning from others or of specializing is not so large; it may be that high motor skill activities require significant investments in land and that land costs are lower in smaller cities. Whatever the reason, smaller cities are the locations where high motor skill individuals are most productive.
There’s a lesson here as well. Smaller cities aren’t going to compete for the cognitive and people skill superstars. These individuals are going to locate in large cities where the returns to their skills and abilities are much greater. Small cities, though, can compete for the motor skills superstars. And there’s the message: Instead of every smaller city trying to be a mini New York or Toronto, they should try to be very different. Success is more likely to come from manufacturing high quality products requiring skilled craftspeople and not from being the next Bohemia.