Expert Commentary

Cities, skills and wages in the United States

2012 study by the University of Toronto on the relationship between the skills used in a job and the salary for that job in a city of a given size.

Since the 1970s the United States has been shifting from a manufacturing-based economy to one centered on services and information technology. This transition has had a wide range of impacts, including the availability of certain jobs, the wages individuals receive and the skills and education that work requires. A 2012 study published in the Journal of Economic Geography, “Cities, Skills and Wages,” analyzes employment data in the United States to better understand how job skills affect wages in cities of different sizes.

The researchers, based at the Rotman School of Management and Institute for Competitiveness and Prosperity in Toronto and the Jönköping International Business School in Sweden, analyzed data from the U.S. Bureau of Labor Statistics (BLS) in 1999 and 2008. The authors separated the 728 jobs and 87 skills tracked by the BLS into three broad skill categories — analytic, social intelligence and physical. They then looked at where the jobs were distributed and the wages paid, controlling for regions’ population, density and industry structure, and workers’ education levels and immigration status.

The study’s findings include:

  • Analytic and social intelligence skills are positively correlated with higher wages. “Even when we control for other factors affecting regional wages, such as population, density, human capital, industry structure and immigration, the variables for analytical and social intelligence skills remain strong and statistically significant.”
  • Jobs that require analytic and social intelligence skills, which benefit from “clustering,” tend to concentrate in larger, denser metropolitan areas.
  • Skills are a much better predictor of wages than education level. “While the return to a college education has remained relatively flat between 1999 and 2008, the return to skills has more than doubled.”
  • Over time, the proportion of jobs requiring high physical skills have declined everywhere except in small cities. “This implies that physical skills are shifting toward smaller and medium-sized regions. Thus, physical skills do not appear to benefit from city size or concentration.”
  • Physical skills appear to be associated with lower wages, though this was not a statistically significant finding.

The authors state that the findings do not indicate causality — “whether jobs attract people or vice versa.” But broadly, they found that salaries are influenced by the type of skill associated with a given job, not just the population that performs it. “Since wage levels reflect individual productivity levels, we can assume that these underlying skills add to the ability to perform work over and above those of education.”

Keywords: employment, entrepreneurship, small business, creative class, gentrification, clustering, cluster effect, agglomeration effects

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