This document discusses city productivity and outlines a model of how cities contribute to economic growth. It notes that nearly half of global economic growth over the next decade will occur in 400 cities. The model presented links cities to the world technology frontier, with factors like education, infrastructure, and institutions affecting cities' ability to adopt new technologies. Cities experience productivity growth through sorting of skilled workers and agglomeration effects. Empirically, cities have higher wages than rural areas, with around half due to sorting and half due to agglomeration. The document also discusses policy and research challenges for improving city productivity.

1. Produktivitetskommisjonen
Productivity and cities
Jørn Rattsø
Head of Norwegian Productivity Commission,
Professor of Economics

2. Produktivitetskommisjonen
City economies
• FT/ ‘Cities, not countries, are the key to
tomorrow’s economies’
• FT/ ‘Nearly half of global economic growth
over the next decade will take place in
400 cities’
• Outline:
• City productivity growth model
• City productivity advantage, empirical
• Policy and research challenges

3. Produktivitetskommisjonen
Productivity growth model
• Countries relate to world technology frontier
(Nelson-Phelps; Aghion-Howitt, Benhabib-
Spiegel, Caselli-Coleman, Lucas)
• World technology frontier driven by
innovation
• Factors affecting technology adoption:
Knowledge, infrastructure, openness,
institutions/ regulation
• Catching-up or falling behind, convergence or
divergence
3

4. Produktivitetskommisjonen
City links to world technology
frontier
• Conditions for technology adoption:
• Education level, education institutions,
research institutions
• Transport and digital infrastructure
• Open economies
• City government capacity and competence
– planning, networks, partnerships
• Given national institutions/ regulations
4

5. Produktivitetskommisjonen
City productivity model
• Sorting, selection and agglomeration
(Behrens et al., Duranton-Puga, Eeckhout
et al., Henderson, Moretti)
• Mechanisms of agglomeration economies:
• Knowledge spillover, innovation
• Matching at labor markets
• Specialization, variety
• Scale effect, larger market
5

6. Produktivitetskommisjonen
City productivity
• Cities versus rural, mega cities different
• Wages reflect productivity
• Cities have higher wages, raw difference
from rural regions 20-50%
• Roughly half is sorting (better education)
and half is agglomeration effect
• Agglomeration effect, elasticity of wages
wrt population density is 0.02-0.03 –
doubling population size gives 2-3% more
labor productivity (Combes-Gobillon)
6

7. Produktivitetskommisjonen
Norway analysis, role of education
• Individual data (4.1 million worker year
observations, 350 occupation groups, 89
labor market regions, 140.000 firms)
• City wage premium increasing with education
• College educated higher return to experience
in cities
• College educated gain from job shift, less
educated gain from job tenure
• Sorting based on unobserved abilities
important for college educated and young
7

8. Produktivitetskommisjonen
City policy challenges
• Cities in national government structure,
regionalization, city government
• City political leadership, links to national
and international institutions
• Instruments of economic development –
education, infrastructure, innovation
• Responsibilities: Education, health care,
infrastructure, transport, planning
8

9. Produktivitetskommisjonen
City research challenges
• Successful versus unsuccessful cities,
conditions and dynamic processes
• Organizing education, research and
innovation
• Models of governance and financing
• Soft policies – partnerships, clusters,
innovation chains, technology programs
9

10. Produktivitetskommisjonen
Norwegian Productivity Commission
• Declining productivity growth together
with OECD-countries, now 1% per year
• Productivity growth = Population growth,
aging population, oil plateau reached
• Median OECD-score on growth indicators
(innovation, entrepreneurship etc)
inconsistent with continued top income
• Productivity growth potential towards
more complex economy
10

11. Produktivitetskommisjonen
http://produktivitetskommisjonen.no/