College-Educated Workers Migrating to Bigger Metro Areas Rather Than Rural Communities: St. Louis Fed Analysis

ST. LOUIS — When it comes to competing for workers, the bigger cities may have the edge on their rural cousins, at least when it comes to college graduates' decisions about where they want to live.

That's from an analysis by Christopher H. Wheeler, an economist with the Federal Reserve Bank of St. Louis, writing in the March/April issue of Review, the Federal Reserve Bank of St. Louis' bimonthly journal of economic and business issues. The publication is also available on the Reserve Bank's web site.

"Human capital," Wheeler writes, "is now commonly held to be one of the fundamental drivers of economic growth. To be sure, the notion that the skills possessed by an economy's workforce promote technological advancement and productivity growth is an intuitively appealing one. Yet, there is also a fair amount of empirical evidence that supports this notion."

Looking at data for some 200 U.S. metropolitan areas from 1980 to 2000, Wheeler analyzed human capital against the decisions by college-educated workers about where to live. While previous studies have focused on economic growth as a benefit of human capital, Wheeler cites studies that suggest greater educational levels attained by a community's residents also reap other benefits, such as lower crime rates, greater civic involvement and less political corruption.

Wheeler's analysis produced three primary findings:

• College-educated individuals tend to locate in metropolitan areas rather than rural parts of the country. "In 1980, 86.1 percent of all college graduates resided in metropolitan areas," says Wheeler. "By 2000, this figure had risen to 89.9 percent. In contrast, approximately 78 percent of workers with only a high school diploma were metropolitan dwellers in either year."
• The largest metro areas (in terms of population) experienced the greatest increases in the number of college-educated workers in the 1980-2000 period. "This," says Wheeler, "is likely due to the importance that college graduates place on a broad variety of 'urban' amenities—for example, restaurants, theaters and other live entertainment venues—as well as the concentration of jobs in the professional and business services in cities."
• Metro areas that had the largest number of college-educated residents in 1980 experienced the largest increases in college-educated populations between 1980 and 2000. "This result suggests that college-educated people want to surround themselves with comparably educated people, probably because they have similar preferences," says Wheeler.

Wheeler says the results of his analysis suggest that although the fraction of the U.S. population with a bachelor's degree or higher has increased over the last couple of decades, college graduates are becoming increasingly concentrated in the nation's largest cities. At the same time, however, he finds that the gap between the college attainment rates of the resident populations of the largest and smallest metro areas has grown wider.

"These results," Wheeler concludes, "suggest that smaller cities and rural areas may have a harder time attracting the 'human capital' they need and thus reaping the benefits associated with it."

With branches in Little Rock, Louisville and Memphis, the Federal Reserve Bank of St. Louis serves the Eighth Federal Reserve District, which includes all of Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi. The St. Louis Fed is one of 12 regional Reserve banks that, along with the Board of Governors in Washington, D.C., comprise the Federal Reserve System. As the nation's central bank, the Federal Reserve System formulates U.S. monetary policy, regulates state-chartered member banks and bank holding companies, and provides payment services to financial institutions and the U.S. government.

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