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Human Capital Externalities in Western Germany

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  • Daniel F. Heuermann

    (Institute for Labour Law and Industrial Relations in the EC, University of Trier)

Abstract

The paper sheds light on the impact of spatial agglomeration of human capital on individual wages in Western Germany. Using panel data it shows that regional wage differentials are to a large extent attributable to localized human capital externalities arising from the regional share of highly qualified workers. Employing the regional number of public schools and of students as instrumental variables the paper shows that human capital externalities are underestimated in ordinary panel regressions for wages of highly qualified and non-highly qualified workers alike due to supply shifts of highly qualified workers. An analysis by sector reveals that human capital externalities are more pronounced in manufacturing than in the service sector. We find indication that highly qualified workers benefit from intra-industry knowledge spillovers, while non-highly qualified workers profit from pecuniary externalities between industries. Our findings are stable among a variety of indicators of regional human capital and robust to the inclusion of other sources of increasing returns, as well as wage curve, price level, and amenity effects.

Suggested Citation

  • Daniel F. Heuermann, 2009. "Human Capital Externalities in Western Germany," IAAEG Discussion Papers until 2011 200903, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    • Handle: RePEc:iaa:wpaper:200903
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    References listed on IDEAS

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    1. repec:iab:iabfme:200502(en is not listed on IDEAS
    2. Gabriel Felbermayr & Wido Geis & Wilhelm Kohler, 2014. "Restrictive Immigration Policy in Germany: Pains and Gains Foregone?," World Scientific Book Chapters, in: European Economic Integration, WTO Membership, Immigration and Offshoring, chapter 12, pages 395-419, World Scientific Publishing Co. Pte. Ltd..
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    5. Wagner, Alfred, 1891. "Marshall's Principles of Economics," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 5, pages 319-338.
    6. Gartner, Hermann, 2005. "The imputation of wages above the contribution limit with the German IAB employment sample," FDZ Methodenreport 200502_en, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
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    Cited by:

    1. Peters, Jan Cornelius, 2016. "Quantifying the effect of labor market size on learning externalities," Economics Working Papers 2016-11, Christian-Albrechts-University of Kiel, Department of Economics.
    2. Rasmus Thönnessen & Erich Gundlach, 2013. "The size of human capital externalities: cross-country evidence," Public Choice, Springer, vol. 157(3), pages 671-689, December.
    3. Chauvin, Juan Pablo & Glaeser, Edward & Ma, Yueran & Tobio, Kristina, 2017. "What is different about urbanization in rich and poor countries? Cities in Brazil, China, India and the United States," Journal of Urban Economics, Elsevier, vol. 98(C), pages 17-49.
    4. Eppelsheimer, Johann & Jahn, Elke J. & Rust, Christoph, 2022. "The spatial decay of human capital externalities - A functional regression approach with precise geo-referenced data," Regional Science and Urban Economics, Elsevier, vol. 95(C).
    5. Andrés Felipe Sarria A., 2018. "Externalidades de la educación bajo la estimación de modelos multinivel: un enfoque por tipo de trabajador," Revista de Economía del Caribe 17163, Universidad del Norte.
    6. John V. Winters, 2018. "Do higher levels of education and skills in an area benefit wider society?," IZA World of Labor, Institute of Labor Economics (IZA), pages 1-10, December.
    7. Cui, Ying & Martins, Pedro S., 2021. "What drives social returns to education? A meta-analysis," World Development, Elsevier, vol. 148(C).
    8. Florian Immanuel Schumacher & Joilson Dias, 2011. "The Human Capital Function: Sectoralexternalities," Anais do XXXVIII Encontro Nacional de Economia [Proceedings of the 38th Brazilian Economics Meeting] 215, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    9. Florian I. Schumacher & Joilson Dias & Edinaldo Tebaldi, 2014. "Two tales on human capital and knowledge spillovers: the case of the US and Brazil," Applied Economics, Taylor & Francis Journals, vol. 46(23), pages 2733-2743, August.
    10. Paul Verstraten, 2018. "The scope of the external return to higher education," CPB Discussion Paper 381.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    11. Thönnessen, Rasmus, 2014. "Human capital externalities vs. substitution effects as determinants of regional wages: Evidence from German micro data," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100345, Verein für Socialpolitik / German Economic Association.
    12. B. Fingleton & P. Cheshire & H. Garretsen & D. Igliori & J. Le Gallo & P. McCann & J. McCombie & V. Monastiriotis & B. Moore & M. Roberts, 2011. "We Move into Distinguished Company," Spatial Economic Analysis, Taylor & Francis Journals, vol. 6(2), pages 133-138.
    13. Charlie Karlsson & Börje Johansson & Roger R. Stough, 2012. "Introduction – Human Capital and Agglomeration," Chapters, in: Charlie Karlsson & Börje Johansson & Roger R. Stough (ed.), The Regional Economics of Knowledge and Talent, chapter 1, Edward Elgar Publishing.
    14. Möller, Joachim & Eppelsheimer, Johann, 2016. "The Wage Effects of Regional Brain Gain and Brain Drain Revisited," VfS Annual Conference 2016 (Augsburg): Demographic Change 145506, Verein für Socialpolitik / German Economic Association.
    15. Losina Purnastuti & Ruhul Salim, 2015. "Externalities and the Social Return to Education in Indonesia," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 18(1), pages 53-74.
    16. Paul Verstraten, 2018. "The scope of the external return to higher education," CPB Discussion Paper 381, CPB Netherlands Bureau for Economic Policy Analysis.
    17. Filiztekin, Alpay, 2011. "Social returns to education in a developing country," MPRA Paper 35124, University Library of Munich, Germany.

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    More about this item

    Keywords

    Human Capital Externalities; Agglomeration; Urban Wage Premium;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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