State of the Region

The value of human capital

For District MSAs, it seems likely that their economic prospects will be tied to the value of their workers’ skill levels.

To be sure, we need to be careful when interpreting this result: In a simple statistical model that includes BA attainment, prior home prices, and manufacturing intensity, there remains a fair amount of unexplained variation in employment changes across metro areas during the recovery. Nevertheless, this correlation is consistent with other evidence on what drives income and employment growth in subnational economies over the longer term, such as Cleveland Fed research from 2005 on education and innovation. This study highlights human capital— whether measured directly as educational attainment or indirectly through local patent production—as a key driver of these differences throughout the better part of the twentieth century. More recently, other research has shown that areas known as “brain hubs” have tended to post especially strong employment growth, while manufacturing centers have tended to struggle. For District MSAs, it seems likely that their economic prospects will be tied to the value of their workers’ skill levels. We have evidence of this over the longer term, but that relationship is also apparent in this recovery.