Four Essays on Human Capital Externalities
Individual wages differ substantially across regions and cities within Germany. Based on this observation, the thesis aims to shed light on the causes and the underlying microeconomic mechanisms responsible for regional differences in labor productivity. It takes the notion of local human capital externalities as its core theoretical concept, which contends that individual education and experience not only determines a worker???s productivity alone, but may also affect productivity and wages of workers in spatial proximity through processes of knowledge exchange, e.g. by communication and observation. With respect to Germany, the notion of local human capital externalities is of potential relevance since average levels of education differ substantially across regions. Hence, the present thesis investigates the extent to which differences in regional productivity can be assigned to local human capital externalities and sheds light on the microeconomic mechanisms through which productivity enhancing effects from aggregate human capital come about. The thesis is structured along four core articles, each of which approaches the relation between individual productivity and aggregate human capital from a different angle. The first article contains a literature review which relates the empirical literature on human capital externalities to the closely related literature on agglomeration economies. It concludes that external effects from aggregate human capital and from agglomeration have both been shown to be valid explanations for regional differences in individual productivity and, hence, wages. Furthermore, comparing empirical methods developed in both literatures the article argues that there is a large potential for mutual learning between both literatures and outlines avenues towards a further integration between the two branches. The second article contains an empirical investigation into the extent to which local human capital externalities shape wage levels across regions in Germany. Controlling for omitted variables and reverse causality by means of instrumental variables it relies on individual wage equations augmented by regional variables as its core identification strategy. The results show that, in accordance with findings from other countries, aggregate human capital levels unfold a significant influence on the wages of highly qualified and non-highly qualified workers alike. Aiming to shed light on the microeconomic mechanisms through which local human capital externalities unfold the third article investigates whether larger and denser career networks in human capital intensive regions lead to an improved quality of labor market matches. It therefore examines whether significant differences can be found between human capital intensive and human capital poor regions with respect to individual wage adjustments in case of job changes, as well as with respect to the individual probability of job changes over the life cycle. The results are strongly supportive of the idea that human capital externalities arise through a more efficient flow of labor market relevant knowledge in human capital rich regions, which in turn leads to higher individual productivity and wages in skilled regions. The fourth article examines whether successful regional industrial change and local human capital endowments are two sides of the same coin inasmuch as productivity enhancing effects of either one depend on the presence of the respective other. The results suggest that dynamic labor markets and regional average human capital levels are complements to each other. More specifically, local industries are found to be more productive if they are located within regions which are shaped by both an above average incidence of labor turnover and a high stock of human capital. In addition, human capital externalities arise first and foremost if workers change jobs within a local industry and thereby enhance average productivity by allowing for knowledge spillovers and improved labor market matching. Summing up, the results from all four papers of the thesis provide strong evidence for the importance of regional human capital externalities as a driving force behind regional wage differentials. Two core implications arise from these results for the design of educational and infrastructural policies, both of which are discussed in the final chapter of the thesis. First, public investments into education are likely to enhance efficiency since with the existence of human capital externalities individuals are likely to underinvest into their education. Secondly, public investments into infrastructure, which foster an integration of human capital intensive and human capital poor labor markets, are likely to enable a larger number of workers to benefit from the productivity enhancing effects arising from high aggregate levels of human capital. rn rnrn rn rn
Alternative title: | Four Essays on Human Capital Externalities |
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Year of publication: |
2009
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Authors: | Heuermann, Daniel Frederik |
Publisher: |
Universit??t Trier / Fachbereich 4. Wirtschaftswissenschaften |
Subject: | Humankapital | Agglomerationseffekt | Externer Effekt | Humankapitalexternalit??t | regionale Lohndifferenzen | Human Capital Externalities | Regional Wage Differences | Agglomeration |
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