Human Capital Density

It's now well-accepted that the concentration of highly skilled people or of human capital is a key element of economic growth and development. Jane Jacobs argued that the clustering of talented and energetic people in cities is the fundamental driving force of economic development. The Nobel prize-winning University of Chicago economist Robert Lucas formalized Jacobs' insights, showing that human capital externalities, or what have been called Jane Jacobs externalities, are indeed the key factor in economic growth and development.

But most economists measure human capital on the basis of population - the conventional measure being the percentage of adults with a bachelor's degree or above. Our analysis here takes a different approach, getting at the density of human capital by looking at the number of adults with a bachelor's degree per square kilometer.

The map below shows the human capital density of U.S. metros. The median human capital density across all U.S. metros is roughly 7.4 people per square kilometer. The densest metros have more than 100 degree holders per square kilometer, while the least dense have less than one.

The chart below shows the 10 densest metros in terms of human capital. The human capital density of these metros ranges from 10 to 20 times the national norm.

Source: U.S. Census Bureau 2008.

It's not surprising that Greater New York tops the list with 156 college graduates per square kilometer. The figure is not just for Manhattan or New York City where such density would be expected, but for the entire metro area, including suburbs in Long Island and New Jersey. Los Angeles places second, surprisingly, with 123 college graduates per square kilometer. San Francisco is a close third with 122 college graduates per square kilometer. Two additional metros have 100 or more degree holders per square kilometer: Bridgeport-Stamford, Connecticut (104), and the Trenton area in central New Jersey (100), which is the state capital, includes Princeton and is approximately equidistant between the Philadelphia and New York-Northern New Jersey commuter sheds. Greater Boston (84), New Haven (75), Greater Washington, D.C. (74), Honolulu (73), and Chicago (69) round out the top 10.

The next map shows the human capital density of U.S. metros compared to what their population density would predict, based on a residual analysis.

The next chart shows the 10 metros with the highest residual value - that is, the highest human capital density compared to what we'd expect based on their population density.

Source: U.S. Census Bureau 2008.

Now San Francisco tops the list. Bridgeport-Stamford is second - a long-time upper-crust commuter suburb of New York, it now increasingly finds itself home to high-end financial operations. It's followed by Greater Washington, D.C. and Greater Boston. Silicon Valley now makes the list - in seventh place. But New York falls from first to eighth. A number of college towns make the list - Boulder and Ann Arbor - as well as Barnstable (a community composed chiefly of highly educated retirees and commuters on Cape Cod) and the Trenton area of New Jersey.

So to what degree is human capital density associated with key regional economic outcomes? Our correlation analysis suggests that human capital density is closely correlated with regional income (.615), regional wages (.619), regional economic output (.475), and innovation (measured as patents, .464). (As usual, I point out that these correlations point only to associations between variables. They do not specify any causation or make any claims about the direction of causality. And, of course, other intervening variables may come into play).

The scattergraph above plots the relationship between human capital density and regional wages - a key indicator of regional wealth and productivity. The fitted line is reasonably steep and suggests a close association between the two. San Jose (Silicon Valley), San Francisco, Washington, D.C., Greater New York, Boulder, Ann Arbor, and Durham are all located above the line - showing even higher wages than their human capital density would predict.

In my next post, I turn to a related measure for human capital. But instead of measuring it based on educational attainment, we look at the work people actually do, examining the density of the creative class of people employed in science and technology, business and management, health care and law, and arts, culture, design, media, and entertainment.