Inside The Black Box

Journal of Economic Geography 8 (2008) pp. 615–649 Advance Access Published on 21 July 2008

doi:10.1093/jeg/lbn023

Inside the black box of regional development— human capital, the creative class and tolerance
Richard Florida*, Charlotta Mellander** and Kevin Stolarick*

Abstract
While there is a general consensus on the importance of human capital to regional development, debate hasemerged around two key issues. The first involves the efficacy of educational versus occupational measures (i.e. the creative class) of human capital, while the second revolves around the factors that affect its distribution. We use structural equation models and path analysis to examine the relations from these two alternative measures of human capital and regional income and wages, and also toisolate the relations of tolerance, consumer service amenities and the university on its distribution. We find that human capital and the creative class affect regional development through different channels. The creative class outperforms conventional educational attainment measures in accounting for regional labor productivity measured as wages, while conventional human capital does better inaccounting for regional income. We find that tolerance is significantly associated with both human capital and the creative class as well as with wages and income. We also find that the cultural economy has both direct and indirect relationships to regional development and impacts both production and consumption. Keywords: human capital, creative class, tolerance, wages, income, regional development JELclassifications: O30, R10, R20, J24 Date submitted: May 2007 Date accepted: February 2008

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Much of life is ‘creative’ in much the same way that is ‘art’ and ‘science’ . . . To an outsider it even looks the same. A collection of people doing pretty much the same thing, each emphasizing hisown originality and uniqueness. (Lucas, 1988, p. 40)

1. Introduction
What really drives economic development? It is a complex question, so it is not surprising that lots of opinions and answers have been offered. If you ask the typical person on the street, they will tell you the key is jobs. This seems to jibe with common sense: when a place attracts new jobs, more wealth and other good thingsfollow. This conventional wisdom is the backbone of a good deal of economic development policy, as economic developers scramble to lure companies to their towns. Others say technology is key. Pointing out places like Silicon Valley, they say success lies in a high tech cluster of great research universities, abundant venture capital and entrepreneurial startup companies. But according to currentthinking and research in economics, geography and social science broadly, the underlying driver of economic development is

*Martin Prosperity Institute, Rotman School of Management, University of Toronto, Toronto, Canada. email 5florida@rotman.utoronto.ca4 **Prosperity Institute of Scandinavia, Jonkoping International Business School, Jonkoping, Sweden. ¨ ¨ ¨ ¨

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highly skilled and educated people—what some call talent and what economists and social scientists frequently refer to as human capital. Places that have more of it thrive, while those with less stagnate or decline. The central role played byhuman capital in economic development has been documented both in large-scale studies of national economic performance (Barro, 1991) and across regions the US and other advanced countries (Rauch, 1993; Simon and Nardinelli, 1996; Simon, 1998). It is also clear from recent studies that human capital levels are diverging, and the differences are growing larger and more pronounced across regions...