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Schooling Externalities, Technology and Productivity:Theory and Evidence from U.S. States

Listed author(s):
  • Giovanni Peri
  • Susana Iranzo

    (Department of Economics, University of California Davis)

The recent literature on externalities of schooling in the U.S. is rather mixed: positive external effects of average education are hardly found at all, while often positive externalities from the share of college graduates are identified. This paper proposes a simple model to explain this fact and tests it using U.S. states data. The key idea is that advanced technologies, associated with high total factor productivity and high returns to skills, are complementary to highly educated workers, as opposed to traditional technologies, complementary to less educated. Our calibrated model predicts that workers with twelve years of schooling (high school graduates) are indifferent between traditional and advanced technologies, while more educated workers adopt the advanced technologies and benefit from the larger private and social returns associated to them. Only shifts in education above high school graduation are therefore associated with positive social returns stemming from more efficient technologies. The empirical analysis, using compulsory attendance laws, immigration of highly educated workers and the location of land-grant colleges as instruments confirm that an increase in the share of college graduates, but not an increase in the share of high school graduates, had large positive production externalities in U.S. States.

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File URL: http://wp.econ.ucdavis.edu/06-35.pdf
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Paper provided by University of California, Davis, Department of Economics in its series Working Papers with number 635.

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Length: 45
Date of creation: 20 Jul 2006
Handle: RePEc:cda:wpaper:06-35
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Web page: http://www.econ.ucdavis.edu
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  1. Lawrence F. Katz & Kevin M. Murphy, 1992. "Changes in Relative Wages, 1963–1987: Supply and Demand Factors," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 35-78.
  2. Angel de la Fuente & Rafael Doménech, 2006. "Human Capital in Growth Regressions: How Much Difference Does Data Quality Make?," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 1-36, 03.
  3. Acemoglu, D., 1997. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," Working papers 97-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Francesco Caselli & Wilbur John Coleman II, 2000. "The World Technology Frontier," NBER Working Papers 7904, National Bureau of Economic Research, Inc.
  5. Antonio Ciccone & Giovanni Peri, 2003. "Identifying Human Capital Externalities: Theory with Applications," Working Papers 6, Barcelona Graduate School of Economics.
  6. Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, vol. 65(1), pages 1-20, January.
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  8. Angel de la Fuente & Rafael Domenech, 2001. "Schooling Data, Technological Diffusion, and the Neoclassical Model," American Economic Review, American Economic Association, vol. 91(2), pages 323-327, May.
  9. David Card, 1993. "Using Geographic Variation in College Proximity to Estimate the Return to Schooling," Working Papers 696, Princeton University, Department of Economics, Industrial Relations Section..
  10. Gianmarco I.P. Ottaviano & Giovanni Peri, 2006. "Rethinking the Gains from Immigration: Theory and Evidence from the U.S," Working Papers 2006.52, Fondazione Eni Enrico Mattei.
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  17. Angrist, Joshua D, 1995. "The Economic Returns to Schooling in the West Bank and Gaza Strip," American Economic Review, American Economic Association, vol. 85(5), pages 1065-1087, December.
  18. repec:fth:prinin:317 is not listed on IDEAS
  19. Peter J. Klenow & Mark Bils, 2000. "Does Schooling Cause Growth?," American Economic Review, American Economic Association, vol. 90(5), pages 1160-1183, December.
  20. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  21. Antonio Ciccone & Giovanni Peri, 2004. "Long-run substitutability between more and less educated workers: Evidence from U.S. States 1950-1990," Economics Working Papers 764, Department of Economics and Business, Universitat Pompeu Fabra.
  22. 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.
  23. Ethan Lewis, 2003. "Local, open economies within the U.S.: how do industries respond to immigration?," Working Papers 04-1, Federal Reserve Bank of Philadelphia.
  24. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
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