Essays on human capital and the growth of Italian cities

From 1971 to 2001, more skilled cities grew more quickly than less skilled cities. A 10 percent increase in the initial share of college-educated residents is associated with an increase in the subsequent employment growth rate of roughly 0.8 percent. This result holds both at the local labour market (LLM) level and at city level. Most of the connection employment growth-human capital is due to productivity related effects at LLM level; in contrast consumption externalities play an important role in cities. In the latter case, quality of life growth explains from 31 to 43 percent of the association education-employment growth. By using the Bank of Italy’s survey on household income and wealth (SHIW) dataset and censuses data, we also find that human capital helps cities to better adapting to negative economic shocks and to restructure their economies as in the case of the North-West. Finally, we try to explain why, in our sample, education predicts employment growth but population decline at the city level. By introducing individuals’ heterogeneity, we test the hypothesis according to which a process of “gentrification” may have occurred in Italy. Our findings give us a prelimary evidence of this phenomenon, but additional work is required.