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Indentifying human capital externalities: Theory with an application to US cities

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  • Antonio Ciccone

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  • Giovanni Peri

Abstract

The identification of aggregate human capital externalities is still not fully understood. The existing (Mincerian) approach confounds positive externalities with wage changes due to a downward sloping demand curve for human capital. As a result, it yields positive externalities even when wages equal marginal social products. We propose an approach that identifies human capital externalities whether or not aggregate demand for human capital slopes downward. Another advantage of our approach is that it does not require estimates of the individual return to human capital. Applications to US cities and states between 1970 and 1990 yield no evidence of significant average -schooling externalities.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 611.

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Date of creation: Mar 2002
Date of revision: Jul 2005
Handle: RePEc:upf:upfgen:611

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Web page: http://www.econ.upf.edu/

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Keywords: Human capital; Externalities; wages; downward sloping labor; demand; imperfect substitutability;

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