Ruhr Economic Papers

Ruhr Economic Papers #195

External Effects of Education: Human Capital Spillovers in Regions and Firms

by Thomas K. Bauer and Matthias Vorell

RWI, RUB, 07/2010, 24 S./p., 8 Euro, ISBN 978-3-86788-220-0



Using a matched employer-employee panel dataset for Germany, we analyze the external effects of education on individual wages. Following the basic framework of Moretti (2004), we allow spillover effects to occur both within a specific firm and a specific region rather than analyzing spillover effects only on a regional level. Controlling for individual- and firm-specific fixed effects and using an instrumental variable strategy, our results confirm the existence of positive but small external effects of human capital. Positive spillover effects within firms occur only for the group of high-skilled workers.

JEL-Classification: C23, D62, J31

Keywords: External effects; human capital; employer-employee matched data