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Identifying Human Capital Externalities: Theory with an Application to US Cities

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  • Ciccone, Antonio

    (University of Mannheim)

  • Peri, Giovanni

    (University of California, Davis)

Abstract

Identification of the strength of human capital externalities at the aggregate level is still not fully understood. The existing method may yield positive or negative externalities even if wages reflect marginal social products. We propose an approach that yields positive average human capital externalities if and only if the marginal social product of workers with aboveaverage human capital exceeds their wage. As an application, we estimate the strength of average-schooling externalities in US cities between 1970 and 1990.

Suggested Citation

  • Ciccone, Antonio & Peri, Giovanni, 2002. "Identifying Human Capital Externalities: Theory with an Application to US Cities," IZA Discussion Papers 488, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp488
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    More about this item

    Keywords

    wages; marginal social product of human capital; human capital externalities;
    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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