12 Q3 2009
because large cities better facilitatedevelopment of professional and socialconnections. Dora Costa and MatthewKahn note that power couples (bothpartners have bachelor’s degrees) areincreasingly locating in larger citiesbecause they offer better labor-marketoutcomes for working couples.It’s important to recognize that anarea’s quality of life depends on morethan the variety of goods and servicesthat increase with city population size.People are also attracted by an area’s“natural” amenities, such as its historiccharacter, architectural variety, naturalscenic beauty, nearness to the ocean,or climate. Richard Florida has alsopointed out that people are payingincreasing attention to the provision of public goods that are oriented towardleisure activities, such as museums,waterfront parks, open-air shoppingcenters, and other public spacesenjoyed by families and individuals.But increased urbanization bringsnot only greater productive efficiencyand greater variety of cultural andleisure activities but also costs, suchas congestion, that take the formof long-distance commuting andhigher housing prices. These costseventually balance the gains from thevarious amenities. The higher cost of housing as cities get congested reduceshouseholds’ purchasing power andlimits the inflow of people.
WHAT’S THE EVIDENCE?
Until recently, the vast majority of studies have looked at the relationshipbetween business agglomerationeconomies and city growth. As I’vepointed out in previous articles,technical improvements, especiallyin transportation, mean that, today,businesses are freer to locate whereverthey want, and, unlike before, theirchoice of location will depend onwhere their workers choose to live.
This means that an area’s specialfeatures, such as its quality of life, willbe an important determinant of wherehouseholds and, ultimately, firmslocate.Comparisons of the quality of life across cities have generated afair amount of interest from workers,the media, and local policymakers.Since 1981, David Savageau hascompiled the
Places Rated Almanac
.A “places rated” index is used toproduce a ranking of cities. Theindex is based on nine categoriesof amenities: cost of living (mostlyhousing costs); the economy (e.g.,the risk of unemployment); climate;education; health care (physiciansand hospitals); transportation (e.g.,airline connections); safety; recreation;and location (e.g., scenic beauty).In constructing the index, DavidSavageau uses his own judgment inthree ways. First, he uses his ownpreferences to determine which itemsto include in each of these categories.Second, Savageau assigns points toeach of the nine categories. Finally, heapplies equal weights to the rankingsin each of the nine categories tocompute an index number reflectingthe amenities offered in each city(the places rated index). As GlennBlomquist has pointed out, “Thisequal weighting means that a one-position difference in climate is equallyimportant as a one-position differencein the crime ranking.” Obviously, therankings of cities will be quite sensitiveto weights assigned to the variouscharacteristics. For example, I mightput more weight on the cost of livingin a city and much less weight on acity’s economy. This would almostcertainly result in a different rankingof cities than one produced by equallyweighting the various categories of quality of life.Beginning in the late 1970s,economists introduced a methodologyfor determining the value of an area’sspecial characteristics by observingwhat people are willing to pay tolive there in terms of higher rentsand lower wages.
Individuals whochoose to live in areas with a highquality of life are willing to move tothese locations despite facing somecombination of higher housing prices(or rents) and lower wages. Thiscombination of higher housing costs
See my 2005
article forfurther discussion of consumer agglomerationeconomies.
See my 2005
Beginning in the late 1970s, economistsintroduced a methodology for determining thevalue of an area’s special characteristics byobserving what people are willing to pay to livethere in terms of higher rents and lower wages.
See, for example, the articles by JenniferRoback; Glenn Blomquist, Mark Berger, and John Hoehn; Joseph Gyourko and Joseph Tracy;and David Albouy. See Glenn Blomquist’s 2007article for an accessible review of the quality-of-life literature.