Despite the presence of anecdotal evidence linking regional economic growth and the presence of quality universities in such areas as the Silicon Valley in California and Route 128 in Boston, there have been few systematic studies of the relationship between universities and local economies. In this paper we examined the relationship between four measures of the quality or extent of activities of colleges and universities in an area and various measures of the local labor market activity, including employment, income and migration.

The relative importance of amenity and productivity differences in explaining wage differentials across metropolitan areas is estimated by utilizing the land and labor market clearing conditions for locational equilibrium of household and firms. Estimates of equilibrium wages and rents, along with estimates of households' budget shares and national income to land and labor rations, are used to identify amenity and productivity components of wages for each metropolitan area in the sample. While both components are found to be important, the productivity component, on average, accounts for a larger share of the intermetropolitan wage differentials. Copyright 1989 by MIT Press.