Size is an often overlooked factor in evaluating cities from a municipal credit standpoint, but urban economics studies have shown unambiguous results: bigger is better.
“Larger cities tend to boast higher levels of productivity and efficiency, according to Christopher Mier, Managing Director of the Analytical Services Division at Loop Capital Markets. “High density, economic diversity, and more human capital typically found in larger cities combine to lower search costs for specialized skills, speed up training times, lower supply chain costs of business, boost the formation of intellectual capital, and a myriad of other favorable factors that create ’agglomeration’ economies.”
The analysis doesn’t end there. In a recent Loop Capital Markets Municipal Strategy Report, Mier examines a new set a metrics that imply economic durability: college degree density, educational opportunities (specifically, medical schools), and global competitiveness, based on airport international seat capacity.
According to the Loop study, San Francisco boasts the highest college degree density, which refers to bachelor and graduate degrees per square mile. The college degree density in San Francisco is 44 times greater than in Oklahoma City. Mier believes that this measure could significantly impact a city’s economic growth potential, productivity, and overall desirability.
San Francisco – along with other high college degree density cities like New York City, Boston, and Washington DC – is more likely to attract better skilled workers and higher wage jobs than a city with lower college degree density. These higher wage earners can, in turn, infuse more capital into their local economies.
“Size reflects one very important aspect of economic survival …”
As an indicator of educational opportunities, the study also identified the presence of medical schools as a desirable factor in a city’s economic base; three cities in the study – Chicago, New York, and Philadelphia – are each home to five medical schools. As Mier explains, cities stand to benefit from these educational institutions, which typically produce graduates that earn higher salaries upon receiving their degrees and beginning their careers. In addition, medical schools attract a younger population, many of whom are likely to stay in the area given the right opportunities.
The ability to participate in the global economy, the third metric examined in the Loop study, is crucial to a city’s success in today’s business environment. Loop ranked cities according to international flight seat capacity, with New York City (JFK International Airport), Miami, and Los Angeles earning the top three spots in the rankings.
City size impacts opportunities for economic recovery
“Size reflects one very important aspect of economic survival,” says Mier, who says that the municipal market may not be recognizing the significance of a city’s size when evaluating credit quality. While many big cities are, indeed, facing financial challenges, they are mostly short-term in nature. “Because they are fortunate to draw upon a larger arsenal of human and production capital, bigger cities are better poised to recover from these challenges.