What Skills Make Cities Rich?

Just as people with higher levels of education have fared better during the Great Recession, cities and regions with higher levels of human capital have experienced lower rates of unemployment and higher wages. But human capital, which takes into account only the level of a worker's education, is a crude measure--some of the world's greatest entrepreneurs, like Bill Gates and Steve Jobs, are college dropouts.

A while back, I wrote about research done by my colleagues at the Martin Prosperity Institute (MPI), that took data provided by the Bureau of Labor Statistics' O*NET Project on actual skills (physical skills of the sort used in manufacturing, analytical or cognitive skills, and social intelligence skills like the ability to direct teams, form entrepreneurial new businesses and organizations, and mobilize people and resources behind common causes and objectives) and charted their relations to the economic performance of cities and regions.

Now new MPI research charts the effects of these skills on regional wages. Each region is ranked three times: by its share of occupations requiring analytical skills, social intelligence skills, and physical skills. As the above chart shows, the two types of skills most closely associated with knowledge and creative work--social and analytical skills--add substantially to regional wages. Physical skills of the sort associated with blue-collar work do the opposite. The MPI study concludes that:

Some cities, like Huntsville or Houston, rely predominately on analytical skills. Most cities that draw highly on analytical skills also rely on social intelligence skills, like San Jose, Boston, Washington, Durham and Boulder. The cities that rely the most on physical skills are places like Dalton, GA, known for its carpet manufacturing, Toledo, OH, a center of glass manufacturing, and agricultural and food processing centers like Bakersfield, CA.

Employment in city regions is shifting away from physical skills and towards analytical and social intelligence skills. Regions that successfully increase their share of jobs relying on analytical and social intelligence skills are more likely to prosper than regions that rely on the physical skillset associated with manufacturing.

There is much more to be gained, both in terms of creating better jobs and making cities and regions more prosperous, from strategies that shift the skill mix of people and places toward social and analytical skills than those that seek to add more manufacturing jobs. Efforts to increase the social and analytical skills used in service jobs not only bolster productivity and spur innovation, but can improve wages and contribute to overall regional prosperity.