1. The density of cities generate network effects - "Being near smart people matters". Enrico Moretti has found that people’s wages typically rise by about 8 percent as the share of their fellow urbanites with college degrees goes up by 10 percentage points. He writes,
"I find that a percentage point increase in the supply of college graduates raises high school drop-outs’ wages by 1.9%, high school graduates’ wages by 1.6%, and college graduates wages by 0.4%. The effect is larger for less educated groups, as predicted by a conventional demand and supply model. But even for college graduates, an increase in the supply of college graduates increases wages."
Further, "globalization and new technologies have increased the returns to being smart, and we get smart by being around other smart people".
2. Educated cities grow faster and can better adapt to economic declines. Edward Glaeser and Albert Saiz write,
"Educated cities have grown more quickly than comparable cities with less human capital... We also find that skilled cities are growing because they are becoming more economically productive (relative to less skilled cities), not because these cities are becoming more attractive places to live. Most surprisingly, we find evidence suggesting that the skills-city growth connection occurs mainly in declining areas and occurs in large part because skilled cities are better at adapting to economic shocks."
A good school system that harnesses the urban advantages of competition and innovation adds to the strength of cities.
3. Cities with large numbers of smaller firms have become innovation hubs and have tended to create more jobs. Edward Glaeser, William Kerr, and Giacomo Ponzetto have written,
"Employment growth is strongly predicted by smaller average establishment size, both across cities and across industries within cities, but there is little consensus on why this relationship exists. Traditional economic explanations emphasize factors that reduce entry costs or raise entrepreneurial returns, thereby increasing net returns and attracting entrepreneurs. A second class of theories hypothesizes that some places are endowed with a greater supply of entrepreneurship. Evidence on sales per worker does not support the higher returns for entrepreneurship rationale. Our evidence suggests that entrepreneurship is higher when fixed costs are lower and when there are more entrepreneurial people."
4. Successful cities keep atrtracting migrants. One pre-requisite to keeping the flow of migrants going is to have affordable housing. As cities grow, vacant spaces get exhausted. In the circumstances, the only way for cities to keep housing affordable is to keep building vertically. As Ed Glaeser writes, "Chicago’s sea of cranes on Lake Michigan helps explain why average condo prices in the New York area are more than 50 percent more than condo prices in the Chicago area."
5. Densified and vertically growing cities are more environment friendly than suburban sprawl. Building up is also an environmentally sensitive alternative to building out. Edward Glaeser writes,
"People who live in cities do tend to emit significantly less carbon than people who live in the country... That’s coming mainly from driving, from the fact that there’s just a lot fewer carbon emissions associated with dense living. It’s not just the move to public transportation; it’s also the drivers within cities — they’re just driving much shorter distances. And then, of course, it’s because of much smaller homes. The higher price of urban space means that people are living in smaller homes, even with the same family size. And that leads to lower electricity usage, lower home heating usage — and those are the facts that I think make cities seem, at least to my eyes, significantly greener."
See this excellent article on skyscrapers.
Update 1 (8/3/2011)
A person’s earnings rise by more than 7 percent as the share of people in his or her metropolitan area with a college degree increases by 10 percent, holding that person’s own level of education constant. Educated neighbors are particularly valuable in dense cities, where contact is more common. Edward Glaeser writes,
"Before the industrial revolution, cities were centers of small, smart companies that connected with each other and the outside world. Small companies and smart people are the sources of urban success today. The industrial city now seems like an unfortunate detour during which cities exploited economies of scale but lost the interactive exchange of ideas that is their most important asset...
A great paradox of our age is that despite the declining cost of connecting across space, more people are clustering together in cities. The explanation of that strange fact is that globalization and technological change have increased the returns on being smart, and humans get smart by being around other smart people. Dense, smart cities like Seattle succeed by attracting smart people who educate and employ one another."