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

49 Pages Posted: 21 Aug 2006 Last revised: 30 Jun 2010

See all articles by Susana Iranzo

Susana Iranzo

Universitat Rovira i Virgili

Giovanni Peri

University of California, Davis - Department of Economics

Date Written: August 2006

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.

Suggested Citation

Iranzo, Susana and Peri, Giovanni, Schooling Externalities, Technology and Productivity: Theory and Evidence from U.S. States (August 2006). NBER Working Paper No. w12440. Available at SSRN: https://ssrn.com/abstract=923967

Susana Iranzo

Universitat Rovira i Virgili ( email )

Tarragona
Spain

Giovanni Peri (Contact Author)

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
530-752-3033 (Phone)
530-752-9382 (Fax)

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