IDEAS home Printed from https://ideas.repec.org/a/red/issued/25-110.html

Estimating Aggregate Human Capital Externalities"

Author

Listed:
  • Junjie Guo

    (University of Wisconsin-Madison)

  • Nicolas Roys

    (Royal Holloway, University of London)

  • Ananth Seshadri

    (University of Wisconsin-Madison)

Abstract

This paper estimates two measures of human capital externalities. By incorporating externalities into an overlapping-generations model of human capital accumulation with Compulsory Schooling Laws (CSL), we show that human capital externalities can be estimated from the effects of CSL for one generation on wages of other generations. Using an instrumental-variable strategy deduced from the model, we find one more year of average schooling at the U.S. state level raises individual wages by 6-8%. Taking this reduced-form estimate into account, we find the elasticity of a typical firm’s productivity with respect to the average human capital of an economy is 0.121. (Copyright: Elsevier)

Suggested Citation

  • Junjie Guo & Nicolas Roys & Ananth Seshadri, 2026. "Estimating Aggregate Human Capital Externalities"," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 62, November.
    • Handle: RePEc:red:issued:25-110
    DOI: 10.1016/j.red.2026.101363
    as

    Download full text from publisher

    File URL: https://dx.doi.org/10.1016/j.red.2026.101363
    Download Restriction: Access to full texts is restricted to ScienceDirect subscribers and institutional members. See https://www.sciencedirect.com/ for details.
    File URL: https://libkey.io/10.1016/j.red.2026.101363?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. David Lagakos & Benjamin Moll & Tommaso Porzio & Nancy Qian & Todd Schoellman, 2018. "Life Cycle Wage Growth across Countries," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 797-849.
    2. Jesse M. Shapiro, 2006. "Smart Cities: Quality of Life, Productivity, and the Growth Effects of Human Capital," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 324-335, May.
    3. Claudia Goldin & Lawrence Katz, 2003. "Mass Secondary Schooling and the State," NBER Working Papers 10075, National Bureau of Economic Research, Inc.
    4. Moretti, Enrico, 2004. "Estimating the social return to higher education: evidence from longitudinal and repeated cross-sectional data," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 175-212.
    5. Melvin Stephens Jr. & Dou-Yan Yang, 2014. "Compulsory Education and the Benefits of Schooling," American Economic Review, American Economic Association, vol. 104(6), pages 1777-1792, June.
    6. Seung Mo Choi, 2011. "How Large Are Learning Externalities?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(4), pages 1077-1103, November.
    7. Rodolfo E. Manuelli & Ananth Seshadri, 2014. "Human Capital and the Wealth of Nations," American Economic Review, American Economic Association, vol. 104(9), pages 2736-2762, September.
    8. Browning, Martin & Hansen, Lars Peter & Heckman, James J., 1999. "Micro data and general equilibrium models," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 8, pages 543-633, Elsevier.
    9. Imbens, Guido W & Angrist, Joshua D, 1994. "Identification and Estimation of Local Average Treatment Effects," Econometrica, Econometric Society, vol. 62(2), pages 467-475, March.
    10. Enrico Moretti, 2004. "Workers' Education, Spillovers, and Productivity: Evidence from Plant-Level Production Functions," American Economic Review, American Economic Association, vol. 94(3), pages 656-690, June.
    11. Philip Oreopoulos & Kjell G. Salvanes, 2011. "Priceless: The Nonpecuniary Benefits of Schooling," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 159-184, Winter.
    12. Jim Malley & Ulrich Woitek, 2019. "Estimated Human Capital Externalities in an Endogenous Growth Framework," Working Papers 2019-04, Business School - Economics, University of Glasgow.
    13. Joshua D. Angrist & Jörn-Steffen Pischke, 2014. "Mastering ’Metrics: The Path from Cause to Effect," Economics Books, Princeton University Press, edition 1, number 10363, December.
    14. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
    15. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863, Elsevier.
    16. James Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explanations With A Dynamic General Equilibrium Model of Labor Earnings With Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 1-58, January.
    17. Tamura, Robert, 1991. "Income Convergence in an Endogenous Growth Model," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 522-540, June.
    18. Jim Davies, "undated". "Empirical Evidence on Human Capital Externalities," Working Papers-Department of Finance Canada 2003-11, Department of Finance Canada.
    19. Paul Charruau, 2024. "Spatial wage disparities and human capital externalities in France," Post-Print halshs-04732400, HAL.
    20. Lance Lochner, 2010. "Non-Production Benefits of Education: Crime, Health and Good Citizenship," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 20107, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
    21. Nicola Gennaioli & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2013. "Human Capital and Regional Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(1), pages 105-164.
    22. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75(4), pages 352-352.
    23. Leonard Wantchekon & Marko Klašnja & Natalija Novta, 2015. "Education and Human Capital Externalities: Evidence from Colonial Benin," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(2), pages 703-757.
    24. David Lagakos & Benjamin Moll & Tommaso Porzio & Nancy Qian & Todd Schoellman, 2018. "Life-Cycle Human Capital Accumulation across Countries: Lessons from US Immigrants," Journal of Human Capital, University of Chicago Press, vol. 12(2), pages 305-342.
    25. Moretti, Enrico, 2004. "Human capital externalities in cities," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 51, pages 2243-2291, Elsevier.
    26. Rauch James E., 1993. "Productivity Gains from Geographic Concentration of Human Capital: Evidence from the Cities," Journal of Urban Economics, Elsevier, vol. 34(3), pages 380-400, November.
    27. Susana Iranzo & Giovanni Peri, 2009. "Schooling Externalities, Technology, and Productivity: Theory and Evidence from U.S. States," The Review of Economics and Statistics, MIT Press, vol. 91(2), pages 420-431, May.
    28. Jim Malley & Ulrich Woitek, 2019. "Estimated human capital externalities in an endogenous growth framework," CESifo Working Paper Series 7603, CESifo.
    29. Antonio Ciccone & Giovanni Peri, 2006. "Identifying Human-Capital Externalities: Theory with Applications," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(2), pages 381-412.
    30. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Seung Mo Choi, 2008. "How Large are Learning Externalities? Measurement by Calibration," Working Papers 2008-26, School of Economic Sciences, Washington State University.
    2. Carlino, Gerald & Kerr, William R., 2015. "Agglomeration and Innovation," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 349-404, Elsevier.
    3. Bibhudutta Panda, 2017. "Schooling and productivity growth: evidence from a dual growth accounting application to U.S. states," Journal of Productivity Analysis, Springer, vol. 48(2), pages 193-221, December.
    4. Paul Verstraten, 2018. "The scope of the external return to higher education," CPB Discussion Paper 381.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Paul Verstraten, 2018. "The scope of the external return to higher education," CPB Discussion Paper 381, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Feng, Shuaizhang & Xia, Xiaoyu, 2022. "Heterogeneous firm responses to increases in high-skilled workers: Evidence from China's college enrollment expansion," China Economic Review, Elsevier, vol. 73(C).
    7. Isacsson, Gunnar, 2005. "External effects of education on earnings: Swedish evidence using matched employee-establishment data," Working Paper Series 2005:10, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    8. Liu, Shimeng & Yang, Xi, 2021. "Human capital externalities or consumption spillovers? The effect of high-skill human capital across low-skill labor markets," Regional Science and Urban Economics, Elsevier, vol. 87(C).
    9. Kirby, Simon & Riley, Rebecca, 2008. "The external returns to education: UK evidence using repeated cross-sections," Labour Economics, Elsevier, vol. 15(4), pages 619-630, August.
    10. Bratti, Massimiliano & Leombruni, Roberto, 2014. "Local human capital externalities and wages at the firm level: Evidence from Italian manufacturing," Economics of Education Review, Elsevier, vol. 41(C), pages 161-175.
    11. Nicola Gennaioli & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2013. "Human Capital and Regional Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(1), pages 105-164.
    12. Zeng, Jinli & Zhang, Jie, 2022. "Education policies and development with threshold human capital externalities," Economic Modelling, Elsevier, vol. 108(C).
    13. Park, Woo Ram, 2016. "How Large are Local Human Capital Spillovers?: Evidence from Korea," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 38(4), pages 77-94.
    14. Portugal, Pedro & Reis, Hugo & Guimaraes, Paulo & Cardoso, Ana Rute, 2025. "Human Capital Spillovers and the External Returns to Education," IZA Discussion Papers 17690, IZA Network @ LISER.
    15. Daniel F. Heuermann, 2009. "Career Networks and Job Matching - Evidence on the Microeconomic Foundations of Human Capital Externalities," IAAEG Discussion Papers until 2011 200901, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    16. Gradstein, Mark, 2019. "Misallocation of talent and human capital: Political economy analysis," European Economic Review, Elsevier, vol. 118(C), pages 148-157.
    17. Kaplanis, Ioannis, 2010. "Wage effects from changes in local human capital in Britain," LSE Research Online Documents on Economics 33615, London School of Economics and Political Science, LSE Library.
    18. repec:bof:bofrdp:urn:nbn:fi:bof-201512111472 is not listed on IDEAS
    19. Shawn Kantor & Alexander Whalley, 2009. "Do Universities Generate Agglomeration Spillovers? Evidence from Endowment Value Shocks," NBER Working Papers 15299, National Bureau of Economic Research, Inc.
    20. Fu, Yuming & Gabriel, Stuart A., 2012. "Labor migration, human capital agglomeration and regional development in China," Regional Science and Urban Economics, Elsevier, vol. 42(3), pages 473-484.
    21. McMahon, Walter W., 2018. "The total return to higher education: Is there underinvestment for economic growth and development?," The Quarterly Review of Economics and Finance, Elsevier, vol. 70(C), pages 90-111.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • 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
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:issued:25-110. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.