Human Capital Spillovers and the External Returns to Education

Pedro Portugal (), Hugo Reis, Paulo Guimaraes and Ana Rute Cardoso

No 17690, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We employ a regression model with spillover effects to show that the impact of peer quality on wages is quite large. We estimate that a 10 percent increase in peer quality implies a 2.1 percent increase in an individual's wage. In addition, we estimate the external returns to education using a novel identification strategy, which is strictly based on the peer effect channel, netting out the role of homophily and labor market sorting. We show that a one-year increase in the co-workers' education leads to a 0.58 percent increase in wages. We also show that both effects fade smoothly over time.

Keywords: wage distribution; human capital spillovers; external returns to education; peer effects; linked employer-employee data; high-dimensional fixed effects; workplace; job and occupation (search for similar items in EconPapers)
JEL-codes: I26 J24 J31 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2025-02
New Economics Papers: this item is included in nep-eur, nep-hrm, nep-lma, nep-ltv and nep-ure
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