Schooling Externalities, Technology and Productivity: Theory and Evidence from U.S. States

No 12440, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The recent literature on local schooling externalities in the U.S. is rather mixed: positive external effects of average education levels are hardly to be found but, in contrast, positive externalities from the share of college graduates can often be identified. This paper proposes a simple model to reconcile this mixed evidence. The key idea is that advanced technologies are complementary to highly educated workers, as opposed to traditional technologies which are complementary to less educated workers. Our calibrated model predicts that workers with high school education or less are employed in the traditional sector, while more educated workers are employed in the advanced sector. As the advanced sector is associated with the production of differentiated goods and services this generates a positive pecuniary externality (positive TFP effect) of college educated workers. By contrast, as no externalities are associated with the traditional technology, high school education only increases private returns. The model predictions are tested using data on U.S. states. We use compulsory attendance and child labor laws, push-driven immigration of highly educated workers and the location of Land Grant colleges as instruments for schooling attainments of workers in different states. The empirical estimates confirm that an increase in college education, but not an increase in high school education, had significant positive production externalities in U.S. states during the period 1960-2000.

JEL-codes: J24 J31 O41 R11 (search for similar items in EconPapers)
Date: 2006-08
New Economics Papers: this item is included in nep-edu, nep-eff, nep-geo, nep-hrm and nep-ure
Note: ITI LS PR
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Citations: View citations in EconPapers (7)

Published as Susana Iranzo & Giovanni Peri, 2009. "Schooling Externalities, Technology, and Productivity: Theory and Evidence from U.S. States," The Review of Economics and Statistics, MIT Press, vol. 91(2), pages 420-431, November.

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Related works:
Journal Article: Schooling Externalities, Technology, and Productivity: Theory and Evidence from U.S. States (2009)
Working Paper: Schooling Externalities, Technology and Productivity:Theory and Evidence from U.S. States (2006)
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