Universities and the Rise of Services

Structural transformation from manufacturing to services varies widely across regions. Using regional data from the US, we document four stylized facts: (i) commuting zones with universities experience higher growth in service employment and establishments, especially high-skilled services; (ii) the college wage premium is higher in commuting zones with universities; (iii) structural transformation within tasks and skills is the primary driver of the differential growth of services across regions; and (iv) new tasks emerge predominantly in places with universities. We develop a task-based theory of local structural transformation in which universities function as talent hubs that supply high-skilled labor, and innovation hubs that create new tasks and increase the demand for skills. Our theory and quantitative analysis suggest that the innovation role jointly accounts for the higher growth in services and the skill premium in regions with universities. Our framework provides microfoundations for skill-biased structural change and highlights the role of higher education in shaping regional economic dynamics.