Working Paper: NBER ID: w3905
Authors: James E. Rauch
Abstract: Based on recent theoretical developments I argue that the average level of human capital is a local public good. Cities with higher average levels of human capital should therefore have higher wages and higher land rents. After conditioning on the characteristics of individual workers and dwellings, this prediction is supported by data for Standard Metropolitan Statistical Areas (SMSAs) in the United States, where the SMSA average levels of formal education and work experience are used as proxies for the average level of human capital. I evaluate the alternative explanations of omitted SMSA variables and self-selection. I conclude by computing an estimate of the effect of an additional year of average education on total factor productivity.
Keywords: Human Capital; Productivity; Geographic Concentration; Wages; Land Rents
JEL Codes: J24; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher average levels of human capital (J24) | higher wages (J39) |
| higher average levels of human capital (J24) | higher land rents (R21) |
| higher average levels of human capital (J24) | enhanced productivity (O49) |
| average level of human capital as a local public good (H49) | knowledge diffusion among workers (O36) |
| knowledge diffusion among workers (O36) | enhanced productivity (O49) |
| higher average levels of human capital (J24) | wages per efficiency unit of labor (J31) |
| higher average levels of human capital (J24) | rents per unit of land (Q15) |