The estimates imply that a one-year increase in average schooling in
cities increases their aggregate labour productivity by 8 to 11 percent. The researchers find no evidence for aggregate human capital externalities in cities however although we use three different approaches.

The main theoretical contribution of this research is to show how human capital externalities can be identified (nonparametrically) even if workers with different levels of human capital are imperfect substitutes in production.

Human capital plays a key role in modern growth theory. Empirically, however, the effect of human capital on aggregate labor productivity remains controversial. While some cross-country studies find that the effect is positive and substantial, others report small positive or even
negative effects.

The research estimates the aggregate return to human capital as well as the strength of human capital externalities in 173 US cities between 1970 and 1990. This approach combines the human capital framework of modern growth theory with census data on wages and schooling of approximately 4 million individuals.

The estimates indicate that a one-year increase in average schooling raises average labour productivity by 8 to 11 percent. Returns to scale to human capital are between 62 and 69 percent. The research also analyzed the empirical relationship between individual returns to human capital and average levels of human capital in US cities.

Here, the main finding is that higher average levels of human capital imply lower individual returns. Estimating individual returns with Mincerian wage-regressions, it is found that a one-year increase in average schooling in a city decreases individual returns to schooling by 1.4 percent.

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences
Antonio Ciccone, tel. +34 93 542 1669

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01/01/1999

Antonio Ciccone and Giovanni Peri

research

Urban Policy > Economy knowledge & employment > Urban economy

Competitiveness