Working Paper Series
IFAU - Institute for Evaluation of Labour Market and Education Policy
External effects of education on earnings: Swedish evidence using matched employee-establishment data
Abstract: This paper provides an empirical investigation of
externalities from education in Sweden in an earnings equation framework.
The empirical models are estimated on a large sample of matched employees
and establishments. External effects of education are identified from the
average educational attainment of workers outside the individual’s
establishment. The paper also investigates the coherence of the evidence
with respect to the idea that educational externalities arise through
face-to-face interaction between individuals. A set of different
specifications and fixed effects models is used to investigate the
robustness of the basic cross-sectional model. The cross-sectional models
suggest, in general, that externalities are positive and significantly
different from zero. The cross-sectional evidence is also broadly coherent
with the idea that externalities are declining in spatial transaction
costs, such as the Euclidean distance between establishments. However,
after accounting for individual fixed effects and dummy variables for the
county in which the individual works the results indicate no statistically
significant external effects of education on earnings in Sweden.
Keywords: Education; earnings; (follow links to similar papers)
JEL-Codes: I20; (follow links to similar papers)
38 pages, April 15, 2005
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