Ed Glaeser and Matthew Resseger have a new paper out examining how worker productivity varies with city size. They find that workers in skilled cities become more productive as the cities grow; workers in less skilled cities do not:
There is a strong connection between per worker productivity and metropolitan area population, which is commonly interpreted as evidence for the existence of agglomeration economies. This correlation is particularly strong in cities with higher levels of skill and virtually non-existent in less skilled metropolitan areas. This fact is particularly compatible with the view that urban density is important because proximity spreads knowledge, which either makes workers more skilled or entrepreneurs more productive. Bigger cities certainly attract more skilled workers, and there is some evidence suggesting that human capital accumulates more quickly in urban areas.
No one is quite sure exactly why (skilled) city growth makes workers more productive (Glaeser and Resseger included). One theory is that workers learn more quickly from one another in larger cities; there is more trade-specific information "in the air." For example, software engineers and musicians develop their skills more quickly in a city with lots of software engineers and musicians.
The other theory is that a large city has a deeper pool of entrepreneurs and others with "high human capital" (i.e., smart, creative people). It generates more innovations, which make the city's population more productive, which attracts more workers, who generate more innovation, etc. (This one better matches Jane Jacobs’ theory.)
These are genuinely different explanations. If the first is accurate, then workers’ pay should rise more steeply with experience in large, skilled cities than in small, skilled cities. The second is a sort of “creative destruction” theory; it means that workers in large, skilled cities face a higher risk of being displaced by the latest innovation. I think both are true, which (partly) explains why big cities attract some highly skilled people while repelling others.
