Productivity and Cities

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Information about Productivity and Cities

Published on July 12, 2016

Author: Structuralpolicyanalysis


1. Produktivitetskommisjonen Productivity and cities Jørn Rattsø Head of Norwegian Productivity Commission, Professor of Economics

2. Produktivitetskommisjonen City economies • FT/ ‘Cities, not countries, are the key to tomorrow’s economies’ • FT/ ‘Nearly half of global economic growth over the next decade will take place in 400 cities’ • Outline: • City productivity growth model • City productivity advantage, empirical • Policy and research challenges

3. Produktivitetskommisjonen Productivity growth model • Countries relate to world technology frontier (Nelson-Phelps; Aghion-Howitt, Benhabib- Spiegel, Caselli-Coleman, Lucas) • World technology frontier driven by innovation • Factors affecting technology adoption: Knowledge, infrastructure, openness, institutions/ regulation • Catching-up or falling behind, convergence or divergence 3

4. Produktivitetskommisjonen City links to world technology frontier • Conditions for technology adoption: • Education level, education institutions, research institutions • Transport and digital infrastructure • Open economies • City government capacity and competence – planning, networks, partnerships • Given national institutions/ regulations 4

5. Produktivitetskommisjonen City productivity model • Sorting, selection and agglomeration (Behrens et al., Duranton-Puga, Eeckhout et al., Henderson, Moretti) • Mechanisms of agglomeration economies: • Knowledge spillover, innovation • Matching at labor markets • Specialization, variety • Scale effect, larger market 5

6. Produktivitetskommisjonen City productivity • Cities versus rural, mega cities different • Wages reflect productivity • Cities have higher wages, raw difference from rural regions 20-50% • Roughly half is sorting (better education) and half is agglomeration effect • Agglomeration effect, elasticity of wages wrt population density is 0.02-0.03 – doubling population size gives 2-3% more labor productivity (Combes-Gobillon) 6

7. Produktivitetskommisjonen Norway analysis, role of education • Individual data (4.1 million worker year observations, 350 occupation groups, 89 labor market regions, 140.000 firms) • City wage premium increasing with education • College educated higher return to experience in cities • College educated gain from job shift, less educated gain from job tenure • Sorting based on unobserved abilities important for college educated and young 7

8. Produktivitetskommisjonen City policy challenges • Cities in national government structure, regionalization, city government • City political leadership, links to national and international institutions • Instruments of economic development – education, infrastructure, innovation • Responsibilities: Education, health care, infrastructure, transport, planning 8

9. Produktivitetskommisjonen City research challenges • Successful versus unsuccessful cities, conditions and dynamic processes • Organizing education, research and innovation • Models of governance and financing • Soft policies – partnerships, clusters, innovation chains, technology programs 9

10. Produktivitetskommisjonen Norwegian Productivity Commission • Declining productivity growth together with OECD-countries, now 1% per year • Productivity growth = Population growth, aging population, oil plateau reached • Median OECD-score on growth indicators (innovation, entrepreneurship etc) inconsistent with continued top income • Productivity growth potential towards more complex economy 10

11. Produktivitetskommisjonen

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