IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp17690.html
   My bibliography  Save this paper

Human Capital Spillovers and the External Returns to Education

Author

Listed:
  • Portugal, Pedro

    (Banco de Portugal)

  • Reis, Hugo

    (Banco de Portugal)

  • Guimaraes, Paulo

    (Banco de Portugal)

  • Cardoso, Ana Rute

    (IAE Barcelona (CSIC))

Abstract

We employ a regression model with spillover effects to show that the impact of peer quality on wages is quite large. We estimate that a 10 percent increase in peer quality implies a 2.1 percent increase in an individual's wage. In addition, we estimate the external returns to education using a novel identification strategy, which is strictly based on the peer effect channel, netting out the role of homophily and labor market sorting. We show that a one-year increase in the co-workers' education leads to a 0.58 percent increase in wages. We also show that both effects fade smoothly over time.

Suggested Citation

  • Portugal, Pedro & Reis, Hugo & Guimaraes, Paulo & Cardoso, Ana Rute, 2025. "Human Capital Spillovers and the External Returns to Education," IZA Discussion Papers 17690, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17690
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp17690.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Thomas Cornelissen & Christian Dustmann & Uta Schönberg, 2017. "Peer Effects in the Workplace," American Economic Review, American Economic Association, vol. 107(2), pages 425-456, February.
    2. Jonah B. Gelbach, 2016. "When Do Covariates Matter? And Which Ones, and How Much?," Journal of Labor Economics, University of Chicago Press, vol. 34(2), pages 509-543.
    3. Paulo Guimarães & Pedro Portugal, 2010. "A simple feasible procedure to fit models with high-dimensional fixed effects," Stata Journal, StataCorp LP, vol. 10(4), pages 628-649, December.
    4. Moretti, Enrico, 2004. "Estimating the social return to higher education: evidence from longitudinal and repeated cross-sectional data," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 175-212.
    5. Jan Feld & Ulf Zölitz, 2017. "Understanding Peer Effects: On the Nature, Estimation, and Channels of Peer Effects," Journal of Labor Economics, University of Chicago Press, vol. 35(2), pages 387-428.
    6. Peter Arcidiacono & Gigi Foster & Natalie Goodpaster & Josh Kinsler, 2012. "Estimating spillovers using panel data, with an application to the classroom," Quantitative Economics, Econometric Society, vol. 3(3), pages 421-470, November.
    7. Battisti, Michele, 2017. "High wage workers and high wage peers," Labour Economics, Elsevier, vol. 46(C), pages 47-63.
    8. Trostel, Philip & Walker, Ian & Woolley, Paul, 2002. "Estimates of the economic return to schooling for 28 countries," Labour Economics, Elsevier, vol. 9(1), pages 1-16, February.
    9. Enrico Moretti, 2004. "Workers' Education, Spillovers, and Productivity: Evidence from Plant-Level Production Functions," American Economic Review, American Economic Association, vol. 94(3), pages 656-690, June.
    10. Pedro Martins & Jim Jin, 2010. "Firm-level social returns to education," Journal of Population Economics, Springer;European Society for Population Economics, vol. 23(2), pages 539-558, March.
    11. repec:ucn:wpaper:10197/1101 is not listed on IDEAS
    12. Montenegro, Claudio E. & Patrinos, Harry Anthony, 2014. "Comparable estimates of returns to schooling around the world," Policy Research Working Paper Series 7020, The World Bank.
    13. Rauch James E., 1993. "Productivity Gains from Geographic Concentration of Human Capital: Evidence from the Cities," Journal of Urban Economics, Elsevier, vol. 34(3), pages 380-400, November.
    14. Aniela Wirz, 2008. "Private returns to education versus education spill-over effects," Empirical Economics, Springer, vol. 34(2), pages 315-342, March.
    15. Harmon, Colm & Hogan, Vincent & Walker, Ian, 2003. "Dispersion in the economic return to schooling," Labour Economics, Elsevier, vol. 10(2), pages 205-214, April.
    16. David Card & Ana Rute Cardoso, 2022. "Wage Flexibility under Sectoral Bargaining," Journal of the European Economic Association, European Economic Association, vol. 20(5), pages 2013-2061.
    17. Charles F. Manski, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(3), pages 531-542.
    18. Ashenfelter, Orley & Harmon, Colm & Oosterbeek, Hessel, 1999. "A review of estimates of the schooling/earnings relationship, with tests for publication bias," Labour Economics, Elsevier, vol. 6(4), pages 453-470, November.
    19. Anabela Carneiro & Paulo Guimarães & Pedro Portugal, 2012. "Real Wages and the Business Cycle: Accounting for Worker, Firm, and Job Title Heterogeneity," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 133-152, April.
    20. Gregor Jarosch & Ezra Oberfield & Esteban Rossi‐Hansberg, 2021. "Learning From Coworkers," Econometrica, Econometric Society, vol. 89(2), pages 647-676, March.
    21. Demetrescu, Matei & Rodrigues, Paulo M.M. & Taylor, A.M. Robert, 2023. "Transformed regression-based long-horizon predictability tests," Journal of Econometrics, Elsevier, vol. 237(2).
    22. Daron Acemoglu, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(3), pages 779-804.
    23. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    24. Antonio Ciccone & Giovanni Peri, 2006. "Identifying Human-Capital Externalities: Theory with Applications," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(2), pages 381-412.
    25. Orley Ashenfelter & Colm Harmon & Hessel Oosterbeek, 1999. "A Review of Estimates of the Schooling/Earnings Relationship, with Tests for Publication Bias," Working Papers 804, Princeton University, Department of Economics, Industrial Relations Section..
    26. O. Ashenfelter & D. Card (ed.), 1999. "Handbook of Labor Economics," Handbook of Labor Economics, Elsevier, edition 1, volume 3, number 3.
    27. Angrist, Joshua D., 2014. "The perils of peer effects," Labour Economics, Elsevier, vol. 30(C), pages 98-108.
    28. John M. Abowd & Robert H. Creecy & Francis Kramarz, 2002. "Computing Person and Firm Effects Using Linked Longitudinal Employer-Employee Data," Longitudinal Employer-Household Dynamics Technical Papers 2002-06, Center for Economic Studies, U.S. Census Bureau.
    29. Harminder Battu & Clive R. Belfield & Peter J. Sloane, 2003. "Human Capital Spillovers within the Workplace: Evidence for Great Britain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(5), pages 575-594, December.
    30. Colm Harmon & Hessel Oosterbeek & Ian Walker, 2003. "The Returns to Education: Microeconomics," Journal of Economic Surveys, Wiley Blackwell, vol. 17(2), pages 115-156, April.
    31. Ana Rute Cardoso & Pedro Portugal, 2005. "Contractual Wages and the Wage Cushion under Different Bargaining Settings," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 875-902, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cardoso, Ana Rute & Guimaraes, Paulo & Portugal, Pedro & Reis, Hugo, 2018. "The Returns to Schooling Unveiled," IZA Discussion Papers 11419, Institute of Labor Economics (IZA).
    2. Paul Verstraten, 2018. "The scope of the external return to higher education," CPB Discussion Paper 381.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Paul Verstraten, 2018. "The scope of the external return to higher education," CPB Discussion Paper 381, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Bentsen, Kristian Hedeager & Munch, Jakob R. & Schaur, Georg, 2019. "Education spillovers within the workplace," Economics Letters, Elsevier, vol. 175(C), pages 57-59.
    5. Kirby, Simon & Riley, Rebecca, 2008. "The external returns to education: UK evidence using repeated cross-sections," Labour Economics, Elsevier, vol. 15(4), pages 619-630, August.
    6. Nix, Emily, 2020. "A researcher’s guide to the Swedish compulsory school reform," Working Paper Series 2020:14, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    7. Uschi Backes-Gellner & Christian Rupietta & Simone N. Tuor Sartore, 2017. "Reverse educational spillovers at the firm level," Evidence-based HRM, Emerald Group Publishing Limited, vol. 5(1), pages 80-106, April.
    8. Pedro Portugal & Hugo Reis & Paulo Guimarães & Ana Rute Cardoso, 2023. "What lies behind returns to schooling: the role of labor market sorting and worker heterogeneity," Working Papers w202322, Banco de Portugal, Economics and Research Department.
    9. Justin Van Der Sluis & Mirjam Van Praag & Wim Vijverberg, 2008. "Education And Entrepreneurship Selection And Performance: A Review Of The Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 22(5), pages 795-841, December.
    10. Hugo Reis & Paulo Guimarães & Pedro Portugal & Ana Rute Cardoso, 2022. "Human Capital Spillovers and Returns to Education," Working Papers w202219, Banco de Portugal, Economics and Research Department.
    11. Cui, Ying & Martins, Pedro S., 2021. "What drives social returns to education? A meta-analysis," World Development, Elsevier, vol. 148(C).
    12. Bratti, Massimiliano & Leombruni, Roberto, 2014. "Local human capital externalities and wages at the firm level: Evidence from Italian manufacturing," Economics of Education Review, Elsevier, vol. 41(C), pages 161-175.
    13. Battisti, Michele, 2017. "High wage workers and high wage peers," Labour Economics, Elsevier, vol. 46(C), pages 47-63.
    14. Christopher Wheeler, 2007. "Do localization economies derive from human capital externalities?," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 41(1), pages 31-50, March.
    15. Isacsson, Gunnar, 2005. "External effects of education on earnings: Swedish evidence using matched employee-establishment data," Working Paper Series 2005:10, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    16. Mariana Pereira-López & Isidro Soloaga, 2015. "External returns to higher education in Mexico 2000-2010," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 1-34, May.
    17. Thomas Cornelissen & Christian Dustmann & Uta Schönberg, 2017. "Peer Effects in the Workplace," American Economic Review, American Economic Association, vol. 107(2), pages 425-456, February.
    18. Nicola Gennaioli & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2013. "Human Capital and Regional Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(1), pages 105-164.
    19. Park, Woo Ram, 2016. "How Large are Local Human Capital Spillovers?: Evidence from Korea," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 38(4), pages 77-94.
    20. Pedro Martins & Jim Jin, 2010. "Firm-level social returns to education," Journal of Population Economics, Springer;European Society for Population Economics, vol. 23(2), pages 539-558, March.

    More about this item

    Keywords

    wage distribution; human capital spillovers; external returns to education; peer effects; linked employer-employee data; high-dimensional fixed effects; workplace; job and occupation;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp17690. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.