The economic literature has been silent on two key channels regarding how innovation affects labor supply: skilled-worker migration and "local production" of college graduates. Through these two channels, innovation influences wage divergence, skill levels, and productivity across urban areas. Using patents to proxy for regional innovation, we find that from 2005 to 2015, local college-graduate production plays a greater role in explaining US skill divergence across urban counties. Our findings suggest that local governments should focus on investing in greater local capacity for developing innovations and increasing their local higher-education capacity. Conversely, efforts to attract highly-educated workers from elsewhere should be relatively de-emphasized.
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