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Human Capital Externalities in Western Germany

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Author Info
Daniel F. Heuermann (Institute for Labour Law and Industrial Relations in the EC, University of Trier)

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Abstract

The paper sheds light on the impact of spatial agglomeration of human capital on individual wages in Western Germany. Using panel data it shows that regional wage differentials are to a large extent attributable to localized human capital externalities arising from the regional share of highly qualified workers. Employing the regional number of public schools and of students as instrumental variables the paper shows that human capital externalities are underestimated in ordinary panel regressions for wages of highly qualified and non-highly qualified workers alike due to supply shifts of highly qualified workers. An analysis by sector reveals that human capital externalities are more pronounced in manufacturing than in the service sector. We find indication that highly qualified workers benefit from intra-industry knowledge spillovers, while non-highly qualified workers profit from pecuniary externalities between industries. Our findings are stable among a variety of indicators of regional human capital and robust to the inclusion of other sources of increasing returns, as well as wage curve, price level, and amenity effects.

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File URL: http://www.iaaeg.de/documents/IAAEG_Discussion_Paper_2008_05.pdf
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File Function: Revised version, 2008
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Publisher Info
Paper provided by Institute of Labour Law and Industrial Relations in the European Community (IAAEG) in its series Discussion Papers with number 200805.

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Length: 34 pages
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:iaa:wpaper:200801

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Related research
Keywords: Human Capital Externalities; Agglomeration; Urban Wage Premium;

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Find related papers by JEL classification:
D62 - Microeconomics - - Welfare Economics - - - Externalities
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Daniel F. Heuermann, 2009. "Reinventing the Skilled Region: Human Capital Externalities and Industrial Change," Discussion Papers 200902, Institute of Labour Law and Industrial Relations in the European Community (IAAEG). [Downloadable!]
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