Social Returns to Education: Evidence from Italian Local Labour Market Areas

Abstract

The paper estimates social returns to education in the Italian local labor markets. It shows that there is an important correlation between local human capital and average wages after controlling for individual characteristics. Estimated social returns to education range from 2 to 3%, whereas the private returns amount roughly to 6–7%. To find some support about causality running from local human capital to wages, the paper performs a number of robustness checks. It shows that: the estimated social returns are unlikely to be driven by spatially correlated omitted variables; they survive to the introduction of individual- and territorial-level variables; they are not due to imperfect substitutability across workers or spatial sorting; they are robust to IV techniques that deal with both local human capital and individual human capital endogeneity.