From 1940 to 1990, a 10 percent increase in a metropolitan area's concentration of college-educated
residents was associated with a .8 percent increase in subsequent employment growth. Instrumental
variables estimatessupport a causalrelationship between college graduates and employment growth,
but show no evidence of an effect of high school graduates. Using data on growth in wages, rents
and house values, I calibrate a neoclassical city growth model and find that roughly 60 percent of the
employment growth effect of college graduatesis due to enhanced productivitygrowth, the rest being
caused by growth in the quality oflife. Thisfinding contrasts with the common argument that human
capital generates employment growth in urban areas solely through changes in productivity.