A0294
Title: Human capital spillovers and the external returns to education
Authors: Hugo Reis - Banco de Portugal and Catolica Lisbon (Portugal) [presenting]
Pedro Portugal - Banco de Portugal (Portugal)
Paulo Guimaraes - Banco de Portugal (Portugal)
Ana Rute Cardoso - Institute for Economic Analysis (Austria)
Abstract: A regression model is employed with spillover effects to show that the impact of peer quality on wages is quite large. A 10 percent increase is estimated in peer quality, implying a 2.1 percent increase in an individual's wage. In addition, the external returns to education are estimated using a novel identification strategy, which is strictly based on the peer effect channel, netting out the role of homophily and labor market sorting. It is shown that a one-year increase in the co-workers' education leads to a 0.58 percent increase in wages. Both effects are also shown to fade smoothly over time.
