Agglomeration allows two quite different sorts of increasing returns: interactions among agents and a
highly refined division of labor. A worker‘s ?soft skills? are those needed for effective and productive
interpersonal interactions. These skills are likely to enhance the benefits of interaction in cities, but the
specialization allowed by thick agglomeration may make soft skills less necessary. This paper considers
the role of soft skills in cities and industry clusters in light of the different natures of these two sorts of
agglomeration economies.
The paper begins by specifying a model of the microfoundations of agglomeration economies where soft
skills allow agents to interact more productively with each other. The model shows that soft skills will be
more valuable in cities and industry clusters if agglomeration provides agents with more opportunities to
interact fruitfully. On the other hand, to the extent that agglomeration produces thick, specialized markets
that make interaction easier, agglomeration may be a substitute for soft skills. The net effect of soft skills
is thus theoretically ambiguous. If the opportunity effect dominates, there should be higher levels of soft
skills in large cities and clusters. If the specialization effect dominates, the reverse will hold.
In order to consider the role of soft skills empirically, the paper matches several measures of the
interpersonal interaction requirements of occupations from the Dictionary of Occupational Titles to
Census data to evaluate the soft skills – agglomeration relationship. The within-industry average level of
soft skills is found to be higher in cities but not in industry clusters. Furthermore, the workers at the top
of the skill distribution in large cities typically have higher levels of soft skills than in small cities, while
the least skilled workers are less skilled in large cities than in small cities. This pattern is reversed for
industry clusters. These results are consistent with the opportunity effect dominating in large cities and
the specialization effect in industry clusters.