Young People, Skills and Cities

Young highly educated workers developed in the 70’s and 80’s a pref-erence for working in larger cities, that are also large agglomeration of highly educated workers. Highly educated young workers in 1990 were over-represented in cities, in spite of the lower wage premium they earned for working in crowded metropolitan areas if compared to their older col-leagues. There must be some extra-benefit that young workers acquire in cities and are willing to pay for. In the model we develop to explain these stylized facts this extra-benefit is given by a dynamic externality of human capital. Agglomerations of educated workers arise endogenously, as workers are attracted to dense areas, which improve their learning from others. If the skills accumulated in cities are easily transferrable, it is ef-ficient for educated people to work in dense areas as young and move to less dense areas as mature workers. Once the ”learning period ” is over workers are attracted to smaller and less dense locations where there is less competition from other skilled workers and housing price is lower. Our model explains why young workers were attrected into large cities in the 70’s and 80’s and why, once they have accumulated their human capital, some of them moved to smaller towns