Why Humanity Loves, and Needs, Cities

Edward L. Glaeser is an economics professor at Harvard.

For much of its early existence, our species spread out.

Many millennia ago, we left our primordial homes in search of places where fewer people were competing over nature’s abundance. In the 19^th century, settlers extended across North America to get access to Iowa’s rich soil and Montana’s mines.

But now humanity is marked more by concentration than by spread. In 2007, one-half of the world’s population became officially urban. One-third of Americans inhabit just 16 large metropolitan areas, which collectively use only a tiny fraction of the country’s land mass.

Given the vastness of the globe, why do human beings choose to live so close to one another?

Understanding the appeal of proximity — the economic advantages of agglomeration — helps make sense of the past and future of cities.   If people still clustered together primarily to reduce the costs of moving manufactured goods, then cities would become increasingly irrelevant as transportation costs continue to decline.

If cities serve, as I believe, primarily, to connect people and enable them to learn from one another, than an increasingly information-intensive economy will only make urban density more valuable.

About 30 months ago, the National Bureau of Economic Research convened a conference on the economics of agglomeration and the fruits of that conference were just published.  As I edited the volume and strongly believe in the quality of its contents, I’m going to draw from it in a couple of blog posts.

Perhaps the clearest reason why people cluster together in cities is that wages and productivity rise with density.

The figure shows the 25 percent correlation between the logarithms of population density and 2008 gross metropolitan product per capita (using 2000 Census population numbers).  Per capita productivity increases by 4 percent as population density rises by 50 percent.

But why does productivity rise with density?

The first essay in the book, by Pierre-Philippe Combes, Gilles Duranton, Laurent Gobillon and Sébastian Roux, attacks this productivity puzzle using data on more than eight million French male workers. They are concerned with two potential sources of bias. First, it may be that productivity is causing density, instead of density causing productivity.

Here’s how the four co-authors try to deal with this potential problem. They argue that longstanding geological features of an area — like the quality of a city’s soil — should have little direct impact on productivity in a developed economy today. If they are right, then natural geographic attributes would affect current productivity only indirectly, by increasing population density over time. Researchers can therefore use historical data to try to correct for this reverse causality. They find that the productivity-density link drops little after making this correction.

A second problem is that more skilled people might choose to live in more dense areas.

Across American metropolitan areas, there is a modest (25 percent) correlation between area density and the share of the population with college degrees. To address this issue, the co-authors first control for other types of characteristics of workers and industries. Their more high-powered approach looks at people who migrate from one place to another, and then asks whether wages rise or fall when people move into different metropolitan areas.

By looking only at the wage changes that come with mobility, they are able to correct for aspects of workers’ skill sets and abilities that aren’t captured by years of education.

In their data, they find that about one-third of the connection between density and productivity disappears with this movers-based estimation, which suggests that workers’ ability (beyond what degree they’ve earned) is important.

I found an even larger change when I started using this approach more than 15 years ago, but interpreting these results is tricky.

If cities enable the accumulation of skills, then the movers’ data will understate the true effects of density.   If cities are machines for learning, as suggested by the fact that wages rise more quickly in cities, then a young person who moves from rural India to Bangalore won’t become instantly more productive.

The result on the wage gains of movers suggest that some of the productivity differences across space may reflect the selection of more skilled people into cities.  But in my opinion, they somewhat overcorrect, and eliminate the impact that cities have on learning.  As such, they may be something of a lower bound on the true connection between productivity and density.

Other essays in the volume focus on the changing nature of agglomeration economies. Jed Kolko writes about services, which now dominate most United States urban areas.

Mr. Kolko highlights a fundamental difference between manufacturing and services. For manufacturing firms it doesn’t much matter if suppliers or customers are in the same ZIP code or the same state. Goods are cheap to move. But services seem tied to suppliers and customers that are in the same ZIP code. Since face-to-face contact is so much a part of service provision, they are drawn to the extreme densities of cities.

In the penultimate essay in the book, Giacomo Ponzetto and I ask, “Did the Death of Distance Hurt Detroit and Help New York?”

Improvements in transportation and communication costs made it cost-effective to manufacture in low-cost areas, which led to the decline of older industrial cities like Detroit. But those same changes also increased the returns to innovation, and the free flow of ideas in cities make them natural hubs of innovation. Since the death of distance increased the scope for new innovation, idea-intensive innovating cities were helped by the same forces that hurt goods-producing cities.

Humanity is a social species and our greatest gift is our ability to learn from one another. Cities thrive by enabling that learning, and they have become only more important as knowledge has become more valuable. Understanding what makes cities work is more important than ever.