Local Human Capital Externalities or Sorting? Evidence From a Displaced Workers Sample

In this paper we want to assess if the positive association between individual earnings and local average education is due to human capital externalities or just reflects some ommitted factors. Using a sample of displaced workers, we take into account firm characteristics as well as individual fixed e.ects. We find that, on average educational externalities are quite small, however it seems that these externalities are not captured equally by di.erent types of individuals. More educated workers benefit from a highly-educated environment relative to workers with lower levels of education (about 3% more) and these gains are not all acquired immediately, but through time.