Categories Navigation

Asset Publisher

May 20, 2014

OECD Examines Factors Contributing to Regional Productivity

A paper released in May 2014 by the Organisation for Economic Cooperation and Development (OECD), "What Makes Cities More Productive?", investigates the effect that local governance, human capital, and freight activity can have on the overall productivity of metropolitan regions. The study draws on data from five OECD countries (U.S., Mexico, Germany, United Kingdom, and Spain) to better assess the generalizability of the findings, many of which support GO TO 2040 recommendations related to efficient governance, human capital, and freight. 

Urban areas with over 500,000 residents, such as the Chicago region, yield the greatest benefits in productivity, according to the study.  As metropolitan areas grow in population, so does economic and individual productivity, as estimated by employee wage premiums.  The study found that fragmented governance structures led to decreased productivity; in fact, regions that doubled their number of municipalities saw a 5 percent to 6 percent decrease in productivity. This was attributed to the negative impact that increasing numbers of governmental units can have on overall coordination and economies of scale.  Illinois has more units of government than any other state, with over 1,200 in the CMAP region alone. GO TO 2040 supports the consolidation of local services to improve efficiency and effectiveness where appropriate.

Other key findings of the OECD study suggest that individual's productivity, regardless of education level, is related to overall educational attainment in the metropolitan area.  A 10 percent increase in college graduates within a metro area results in a 3 percent increase in individual productivity at all levels of education, according to the study.  This suggests that high levels of college education in a region can create positive externalities that strongly affect individual productivity.  GO TO 2040 highlights the importance of human capital, especially education and workforce development and economic innovation, for future economic prosperity.

OECD research also indicates that urban areas with a port are 3 percent more productive because of their access to the international goods market. This is particularly relevant to metropolitan Chicago, which is the nation's freight hub and home to the largest inland cargo port in the nation.  GO TO 2040 emphasizes the importance of an efficient freight network, and CMAP's freight cluster drill-down report further analyzes the challenges and opportunities facing this cluster across the areas of infrastructure, workforce, and economic innovation.