Working Paper: CEPR ID: DP2599
Authors: Antonio Ciccone; Giovanni Peri
Abstract: We combine growth theory with US Census data on individual schooling and wages to estimate the aggregate return to human capital and human capital externalities in cities. Our estimates imply that a one year increase in average schooling in cities increases their aggregate labour productivity by 8 to 11%. We find no evidence for aggregate human capital externalities in cities however, although we use three different approaches. Our main theoretical contribution is to show how human capital externalities can be identified (non-parametrically) even if workers with different levels of human capital are imperfect substitutes in production.
Keywords: aggregate return to human capital; cities; decreasing returns to human capital; human capital externalities; imperfect substitution; perfect substitution; scale externalities
JEL Codes: J30; O00; O40; R00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| average schooling (I21) | aggregate labor productivity (O47) |
| average schooling (I21) | external effect on productivity (O49) |
| average schooling (perfect substitutability) (I21) | external effects on wages (F66) |
| aggregate employment (E10) | external effect on wages (J39) |