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Wage Effects from Changes in Local Human Capital in Britain

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  • Ioannis Kaplanis

Abstract

This paper examines the wage effects arising from changing local human capital in the labour market areas of Britain. Employing wage regressions, it is found that individuals' wages are positively associated with changes in the employment shares of high-paid occupation workers in the British travel-to-work-areas for the late 1990s. I examine this positive association for different occupational groups (defined by pay) in order to disentangle between production function and consumer demand driven theoretical justifications. The former refer to production complementarities or wider productivity spillovers arising in areas with high shares of high-skill workers. According to the latter, the presence of a high income workforce in the economy boosts the demand for consumer services leading to an increase in low-pay, service related employment. As these services are non-traded, the increased demand for local low-paid services should be reflected in a wage premium for the relevant low-paid occupation employees in the areas with larger shares of high-paid workers. The wage impact is found to be stronger and significant for the bottom occupational quintile compared to the middle-occupational quintiles and using also sectoral controls the paper argues to provide some preliminary evidence for the existence of consumer demand effects. The empirical investigation addresses potential sources of biases controlling for time invariant unobserved area-specific characteristics and unobserved individual characteristics. Nevertheless, the paper points to a number of caveats of the analysis that warrant future research.

Suggested Citation

  • Ioannis Kaplanis, 2010. "Wage Effects from Changes in Local Human Capital in Britain," SERC Discussion Papers 0039, Spatial Economics Research Centre, LSE.
  • Handle: RePEc:cep:sercdp:0039
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    Cited by:

    1. Ahrend, Rudiger & Farchy, Emily & Kaplanis, Ioannis & Lembcke, Alexander C., 2015. "What makes cities more productive? Agglomeration economies and the role of urban governance: evidence from 5 OECD countries," LSE Research Online Documents on Economics 64619, London School of Economics and Political Science, LSE Library.
    2. Neil Lee & Andrés Rodríguez-Pose, 2013. "Innovation and spatial inequality in Europe and USA," Journal of Economic Geography, Oxford University Press, vol. 13(1), pages 1-22, January.
    3. Ian Richard Gordon & Ioannis Kaplanis, 2014. "Accounting for Big-City Growth in Low-Paid Occupations: Immigration and/or Service-Class Consumption," Economic Geography, Clark University, vol. 90(1), pages 67-90, January.
    4. Ahrend, Rudiger & Farchy, Emily & Kaplanis, Ioannis & Lembcke, Alexander C., 2016. "What Makes Cities More Productive? Evidence from 5 OECD Countries on the Role of Urban Governance," Beiträge zur Jahrestagung 2016 (Witten/Herdecke) 175187, Verein für Socialpolitik, Ausschuss für Wirtschaftssysteme und Institutionenökonomik.
    5. Neil Lee & Andrés Rodríguez-Pose, 2016. "Is there trickle-down from tech? Poverty, employment and the high-technology multiplier in US cities," Papers in Evolutionary Economic Geography (PEEG) 1618, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Aug 2016.
    6. Ioannis Kaplanis, 2010. "Local Human Capital and Its Impact on Local Employment Chances in Britain," SERC Discussion Papers 0040, Spatial Economics Research Centre, LSE.
    7. ., 2014. "Urban economic performance," Chapters,in: Urban Economics and Urban Policy, chapter 2, pages 11-53 Edward Elgar Publishing.
    8. Neil Lee & Stephen Clarke, 2017. "Who gains from high-tech growth? High-technology multipliers, employment and wages in Britain," SPRU Working Paper Series 2017-14, SPRU - Science Policy Research Unit, University of Sussex Business School.
    9. Neil Lee & Paul Sissons, 2016. "Inclusive growth? The relationship between economic growth and poverty in British cities," Environment and Planning A, , vol. 48(11), pages 2317-2339, November.
    10. ., 2014. "Urban policies," Chapters,in: Urban Economics and Urban Policy, chapter 8, pages 185-218 Edward Elgar Publishing.

    More about this item

    Keywords

    local labour markets; wages; consumer demand; human capital externalities;

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • 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
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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