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Identifying Human Capital Externalities: Theory with Applications

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  • Antonio Ciccone
  • 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.

Suggested Citation

  • Antonio Ciccone & Giovanni Peri, 2003. "Identifying Human Capital Externalities: Theory with Applications," Working Papers 6, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:6
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    References listed on IDEAS

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    1. James Heckman, 2011. "Policies to foster human capital," Educational Studies, Higher School of Economics, issue 3, pages 73-137.
    2. 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.
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    4. George J. Borjas, 2003. "The Labor Demand Curve is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1335-1374.
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    6. Daron Acemoglu, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 779-804.
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    More about this item

    Keywords

    Human capital externalities; wages; Downward Sloping Labor Demand; Imperfect substitutability;
    All these keywords.

    JEL classification:

    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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