This paper estimates two measures of human capital externalities. By incorporating externalities into an overlapping-generations model of human capital accumulation with Compulsory Schooling Laws (CSL), we show that human capital externalities can be estimated from the effects of CSL for one generation on wages of other generations. Using an instrumental-variable strategy deduced from the model, we find one more year of average schooling at the U.S. state level raises individual wages by 6-8%. Taking this reduced-form estimate into account, we find the elasticity of a typical firm’s productivity with respect to the average human capital of an economy is 0.121.
Authors
- Acknowledgements & Disclosure
- We thank seminar participants at UCL, University of Oslo, Stockholm University, Stockholm School of Economics and UW-Madison as well as Gary Becker, Richard Blundell, Lance Lochner, Bob Lucas, Kjetil Storesletten and Chris Taber for very helpful comments. All errors are ours. The authors have not received financial support for this research. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- DOI
- https://doi.org/10.3386/w33151
- Pages
- 48
- Published in
- United States of America
Table of Contents
- Introduction 3
- Model 7
- Workers 7
- Firms 8
- Government 8
- Equilibrium 9
- Discussion 9
- Reduced-Form Estimates 10
- Empirical Specification 10
- Data 11
- Identification Strategy 13
- First Stage Estimates 14
- Baseline Estimates of External Returns to Schooling 15
- Estimates from Alternative Specifications 16
- Estimates from Different CSL Cohorts 17
- Estimates by Years of Schooling 18
- Estimates from Workers Between 30 and 39 Years Old 18
- Discussion 19
- Implications 22
- Structural Estimation 23
- Predetermined Parameters 23
- Estimated Parameters 24
- Moments and Identification 25
- Estimation Results 26
- Discussion and Implications 28
- Heterogeneous Human Capital 28
- Conclusion 31
