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Human Capital Externalities in Japanese Local Labor Markets

Author

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  • Yudai Higashi

    (Faculty of Economics, Kyoto Sangyo University and Research Institute for Economics & Business Administration, Kobe University, JAPAN)

Abstract

This study examines the effect of the share of college graduates on average wages in local labor markets, using data covering 1990–2020 in Japan. To address the endogeneity of the local college graduate share arising from labor demand shocks for college graduates, the estimation model uses an instrumental variable approach. According to the results, an increase in the share of college graduates has a positive effect on college graduates' wages during the 2000s and 2010s, while it has no significant effect during the 1990s. However, there is no significant effect on the wages of non-college graduates across all sample periods. These results suggest that human capital externalities were generated among college graduates in local labor markets during the 2000s and 2010s, but no such externalities arose from interactions between college and non-college graduates. Overall, external returns to higher education in terms of local wages appear to be limited in Japan.

Suggested Citation

  • Yudai Higashi, 2026. "Human Capital Externalities in Japanese Local Labor Markets," Discussion Paper Series DP2026-17, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2026-17
    as

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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2026-17.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Liu, Shimeng & Yang, Xi, 2021. "Human capital externalities or consumption spillovers? The effect of high-skill human capital across low-skill labor markets," Regional Science and Urban Economics, Elsevier, vol. 87(C).
    3. Sand, Benjamin M., 2013. "A re-examination of the social returns to education: Evidence from U.S. cities," Labour Economics, Elsevier, vol. 24(C), pages 97-106.
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    Keywords

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    JEL classification:

    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • 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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