209 - Human Capital and Employment Growth in German Metropolitan Areas: New Evidence

DNB Working Papers
Date 23 April 2009

German metropolitan areas with more highly skilled workers became increasingly skilled between 1975 and 2003, and this has important implications for urban employment growth.Using for the first time German metropolitan areas instead of administrative regions we show that the share of college graduates affects growth by the same magnitude as it does in US MSAs. However, conventional estimators are biased upwards. Correcting for the endogeneity of initial employment and solving a common problem of under-identification shows that the effect is at least a third smaller and closer to 0.5% employment growth for a 10% increase in the concentration of skilled workers. The effect is robust to various controls across two data sets. We additionally question the view that aggregate productivity growth is solely due to college graduates. After distinguishing between six different skill levels we find positive growth effects of high school graduates with vocational training, especially if the local concentration of technical professionals is high. The concentration of non-technical university graduates becomes more important over time, but has less bearing on the marginal growth effects of other skill groups. City success may thus depend on the ‘right’ combination of skills as well as college graduates. Key words: human capital, skills, city employment growth, Germany, GMM estimation JEL Classiffication: C22, J2, O47, R0, R1