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

  • Ciccone, Antonio

    ()

    (Universitat Pompeu Fabra)

  • Peri, Giovanni

    ()

    (University of California, Davis)

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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 488.

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Length: 53 pages
Date of creation: Apr 2002
Date of revision:
Publication status: published in: Review of Economic Studies, 73 (2), 2006, 381-412
Handle: RePEc:iza:izadps:dp488
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