Journal Article

Identifying Human-Capital Externalities: Theory with Applications

Antonio Ciccone and Giovanni Peri

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 73, issue 2, pages 381-412
Published in print April 2006 | ISSN: 0034-6527
Published online April 2006 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2006.00380.x
Identifying Human-Capital Externalities: Theory with Applications

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The identification of aggregate human-capital externalities is still not fully understood. The existing (Mincerian) approach confounds positive externalities with wage changes due to a downward sloping demand curve for human capital. As a result, the Mincerian approach yields positive externalities even when wages equal marginal social products. We propose an approach that identifies human-capital externalities, whether or not aggregate demand for human capital slopes downward. Another advantage of our approach is that it does not require estimates of the individual return to human capital. Applications to U.S. cities and states between 1970 and 1990 yield no evidence of significant average-schooling externalities.

Keywords: J24

Journal Article.  14970 words.  Illustrated.

Subjects: Demand and Supply of Labour

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