Are there human capital externalities in U.S. states? Evidence from the Current Population Survey (original) (raw)

[How Large Are Human-Capital Externalities? Evidence from Compulsory Schooling Laws]: Discussion

NBER Macroeconomics Annual, 2000

for helpful discussions and comments. Special thanks to Stefanie Schmidt for advice on compulsory-schooling data. 1. Data on output per worker are from Summers and Heston (1991), with the correction due to Hall and Jones (1999). Education data are from Barro and Lee (1993). See Krueger wages. Second, although in principle CSLs may be correlated with omitted factors that also affect schooling and future wages, we provide evidence suggesting this is not a problem. Omitted variables related to family background or tastes would likely induce correlation between CSLs and college attendance as well as secondary and middle schooling. The results below show that CSLs affected schooling exclusively in middle-school and high-school grades, suggesting that omitted factors do not bias estimates using CSLs as instruments. A third consideration is that changing CSLs were part of the 1910-1940 high-school movement that Goldin (1998) has argued was responsible for much of the humancapital accumulation in the United States in the twentieth century. The baseline results in the paper use samples of white men aged 40-49 from the 1960-1980 Censuses, though some results use 1950 and 1990 data and samples of men aged 30-39. We focus on the 1960-1980 Censuses because the Census schooling variable changed in 1990. Also, we show below that it is important to control for private returns correctly by instrumenting for individual schooling when estimating external returns. The 1960-1980 Censuses include information on quarter of birth, which can be used as an instrument for individual schooling as in Angrist and Krueger (1991). We start with men in their 40s because they are on a relatively flat part of the age-earnings profile. This makes it easier to control for the effect of individual education on earnings, and facilitates the use of quarter-of-birth instruments for individual schooling. Finally, blacks are excluded because blacks in these cohorts experienced marked changes in school quality (see, e.g., Welch, 1973; Margo, 1990; or Card and Krueger, 1992a). Ordinary least-squares (OLS) estimates using data from the 1960-1980 Censuses show a large positive relationship between average schooling and individual wages. A one-year increase in average schooling is associated with about a 7% increase in average wages, over and above the roughly equal private returns. In contrast with the OLS estimates, instrumental variables (IV) estimates of external returns for men aged 40-49 in 1960-1980 are typically around 1-2%, and significantly lower than the corresponding OLS estimates. Adding data from the 1950 Census and/or data for men aged 30-39 yields slightly smaller and more precise estimates.3 We therefore conclude there is little evidence for large external returns, though the results are consistent with modest external returns of 1-3%. The confidence intervals typically exclude human capital externalities greater than 5-6% and therefore rule out magnitudes in the Comment MARK BILS University of Rochester

Human capital and state-level economic growth: what is the contribution of schooling?

The Annals of Regional Science, 2010

In this paper, we set out to quantify the magnitude of the positive empirical relationship between schooling and regional growth. We apply the growth empirics method of Mankiw et al. (Q J Econ 107:407-438, 1992) to a panel of US states. We improve upon the existing regional growth literature by (i) removing transfer payments from personal income, (ii) deflating non-transfer income by individual state price indices, and (iii) using a system GMM estimator. We estimate an education share of income of 20-25%, which corresponds to estimates from the growth accounting literature. JEL Classification O47 • R11 • J24 I would like to thank Rebecca Braeu, Jay Shimshack, and Mun Ho for their helpful comments on the paper.

Identifying Human-Capital Externalities: Theory with Applications

Review of Economic Studies, 2006

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.

Income and Education of the States of the United States

2004

This article introduces original annual average years of schooling measures for each state from 1840 to 2000. The paper also combines original data on real state per worker output with existing data to provide a more comprehensive series of real state output per worker from 1840 to 2000. These data show that the New England, Middle Atlantic, Pacific, East North Central and West North Central regions have been educational leaders over the entire time period. In contrast, the South Atlantic, East South Central and West South Central regions have been educational laggards. The Mountain region behaves differently than either of the aforementioned groups. Using our estimates of average years of schooling and average years of experience in the labor force, we estimate aggregate Mincerian earnings regressions. Our estimates indicate that a year of schooling increased output by between 8 percent and 12 percent, with a point estimate close to 10 percent. These estimates are in line with the ...

Human Capital and Externalities in Cities

SSRN Electronic Journal, 2000

We combine growth theory with US Census data on individual schooling and wages to estimate the aggregate return to human capital and human capital externalities in cities. Our estimates imply that a one-year increase in average schooling in cities increases their aggregate labor productivity by 8 to 11 percent. We find no evidence for aggregate human capital externalities in cities however. Our main theoretical contribution is to show how aggregate human capital externalities can be identified when workers with different human capital are imperfect substitutes in production.

Education and State-Level Economic Growth: Is Productivity a Matter of Degree?

The effect of educational attainment on state-level productivity growth during the post-war period is investigated. Using both a cross-sectional and panel data approach, we find two main results. First, it is the acquisition of a 4-year college degree, not additional years of schooling, which leads to growth in productivity. Second, the social return on a 4-year college degree has fallen over time. These results suggest that at least some of the connection between educational degrees and wages found at the micro-level can be explained by actual productivity gains from the acquisition of 4-year college degrees.

The Impact of New College Graduates on Intrastate Labor Markets

Journal of Education Finance, 2010

A crucial issue in the debate on state support for higher education is the extent that a state's production of college graduates affects the state's education attainment. The view that many new graduates take their state-supported degrees to labor markets in other states undermines states' incentives to promote wider access to college. This study offers reasons to be skeptical of this view, and develops a simple framework to quantify the intrastate labor-market effects from the production of new college graduates. Data from the Integrated Postsecondary Education Data System and the Current Population Survey are used to quantify the effects of new graduates on states' net migration, employment, unemployment, labor force nonparticipation, and wages of college graduates. The results indicate that a state's production of college graduates has a nearly proportionate impact on the state's college attainment.

Education and Income of the States of the United States: 1840–2000

2007

This article introduces original annual average years of schooling measures for each state from 1840 to 2000. Our methodology results in state estimates similar to those reported in the United States Census from 2000 back to 1940 and national, turn of the century estimates strikingly close to those presented by Schultz (Schultz, T. (1961). In N. B. Henry (Ed.), Social forces influencing American education. Chicago: University of Chicago Press.) and Fishlow (Fishlow, A. (1966). In H. Rosovsky (Ed.), Industrialization in two systems. John Wiley & Sons). To further determine the validity of our state schooling estimates, we first combine original data on real state per worker output with existing data to provide a more comprehensive series of real state output per worker from 1840 to 2000. We then estimate aggregate Mincerian earnings regressions and discover that the return to a year of schooling for the average individual in a state ranges from 11% to 15%. This range is robust to various time periods, various estimation methods, various assumptions about the endogeneity of schooling and is in line with the body of evidence from the labor literature.

The measurement of human capital in the US economy

2002

We develop a new approach to measuring human capital that permits the distinction of both observable and unobservable dimensions of skill by associating human capital with the portable part of an individual's wage rate. Using new large-scale, integrated employer-employee data containing information on 68 million individuals and 3.6 million firms, we explain a very large proportion (84%) of the total variation in wages rates and attribute substantial variation to both individual and employer heterogeneity. While the wage distribution remained largely unchanged between 1992-1997, we document a pronounced right shift in the overall distribution of human capital. Most workers entering our sample, while less experienced, were otherwise more highly skilled, a difference which can be attributed almost exclusively to unobservables. Nevertheless, compared to exiters and continuers, entrants exhibited a greater tendency to match to firms paying below average internal wages. Firms reduced employment shares of low skilled workers and increased employment shares of high skilled workers in virtually every industry. Our results strongly suggest that the distribution of human capital will continue to shift to the right, implying a continuing up-skilling of the employed labor force.