Working Paper: CEPR ID: DP714
Authors: Rudolf Winter-Ebmer
Abstract: Lucas' 1988 model of the external effects of human capital formation is used as a starting point for an analysis of the impact of human capital on wages. Most empirical tests of new growth theory are based on time-series and cross-section data. This paper suggests a microeconometric approach to test Lucas' basic assumption of external effects of human capital. First, the internal effects of education are filtered out using wage functions for individuals. Second, the resulting industry wage premiums are regressed on industry-specific characteristics and, above all, on average human capital in the industry, to account for the external effects of human capital. The hypothesis is corroborated for Austria data. Finally, alternative hypotheses such as self-selection or varying individual human capital productivity in different sectors are examined.
Keywords: human capital; external effects; endogenous growth; industry wage differentials
JEL Codes: J31; J24; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| average educational level in an industry (L69) | industry wage premiums (J31) |
| individual education and job experience (J24) | industry wage premiums (J31) |
| average educational level in an industry (L69) | industry wages (J31) |