Why birthplace matters so much in human capital: Case of Sorting, learning and geography
One always believes that those born in bigger cities usually have more advantage then those in smaller places. Those in former category get better schools, public services, a wider social network and so on.
So in this article Clément Bosquet and Henry Overman look at this aspect of role of location in human capital:
The effect of an individual’s place of residence on their life chances has long been discussed in public policy debates. This column uses British Household Panel Survey data to assess whether birthplace plays a role in determining future earnings. On average, an individual born in London in the 1970s will earn around 7% more than an individual of the same age and gender born in Manchester; who in turn will earn 5.5% more than an individual born in Cardiff. Parental sorting and the influence of birthplace in decisions about current location both play a role in explaining this effect.
One possibility is that individual characteristics vary with birthplace size because of the location decisions of different types of parents and the intergenerational transmission of characteristics (‘sorting’). Indeed, the ‘urban wage premium’ literature highlights that much of the wage gap between urban and rural areas and between large and small cities is due precisely to this kind of sorting – specifically, the concentration of more productive workers in bigger cities.
A second possibility is that birthplace size somehow affects the accumulation of human capital – for example because the quality of schools varies with city size (‘learning’).
A third possibility is that birthplace influences future location decisions and through this future labour market opportunities (‘geography’). Indeed, in the extreme case of no mobility, birthplace size directly determines future labour market size and it makes little sense to try to distinguish between the effect of birthplace and current location. We consider all three of these possibilities in our research.
Our findings suggest that inter-generational transmission (sorting) and the effect of birthplace on current location (geography) both play a role in explaining the effect of birthplace.
Much of this would read as but obvious to most of us born in smaller cities..