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Human Capital Externalities in Cities

  • Enrico Moretti

What is the effect of an increase in the overall level of human capital on the economy of a city? Although much is known about the private return to education, much less is known about the more important question of what happens to productivity, wages and land prices when the aggregate stock of human capital in a city increases. Increases in the aggregate stock of human capital can benefit society in ways that are not fully reflected in the private return of education. Human capital spillovers can in theory increase aggregate productivity over and above the direct effect of human capital on individual productivity. Furthermore, increases in education can reduce criminal participation and improve voters' political behavior. In this paper, I review what we know about social returns to education, with a particular emphasis on those externalities that accrue to local geographic areas. The focus of the paper is on the empirical issues that arise in identifying these externalities and on the existing empirical evidence on their magnitude. This paper was prepared as a chapter for the forthcoming Handbook of Urban and Regional Economics.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9641.

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Date of creation: Apr 2003
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Publication status: published as Moretti, Enrico, 2004. "Human capital externalities in cities," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 51, pages 2243-2291 Elsevier.
Handle: RePEc:nbr:nberwo:9641
Note: CH ED
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