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Local Human Capital Externalities: An Overlapping Generation Model and Some Evidence on Experience Premia

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  • Giovanni Peri
Abstract
In an interesting and influential paper Robert Lucas (1993) considering the experience of East Asian small economies, suggests that 'on the job' learning could be the principal engine of their miraculous growth in the last 20 years. In this paper I develop an overlapping generation model where on the job learning, via local spillovers and local interactions, is the main channel of human capital accumulation in small open economies (as cities). The model predicts that skills' accumulation, due to experience in the local environment, has an effect on the experience premia of the workers and on the dispersion of their wages. I find the balanced growth path of the model and I simulate the adj ustment path after a technological shock. The second part of the paper conveys some suggestive evidence on what local characteristics affect the accumulation of skills, using data from 236 U.S. cities. Local characteristics which seem to have a strong imp act on the accumulation of skills are the \rdblquote technological intensity\rdblquote of the local manufacturing sector, the average level of education and the density of teachers in the city. This seems to confirm that the 'quality' of local environments is very important for skills' accumulation.

Suggested Citation

  • Giovanni Peri, 1999. "Local Human Capital Externalities: An Overlapping Generation Model and Some Evidence on Experience Premia," CESifo Working Paper Series 219, CESifo.
    • Handle: RePEc:ces:ceswps:_219
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
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    6. Glaeser, Edward L & Mare, David C, 2001. "Cities and Skills," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 316-342, April.
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    9. repec:hoo:wpaper:e-94-11 is not listed on IDEAS
    10. Bound, John & Johnson, George, 1992. "Changes in the Structure of Wages in the 1980's: An Evaluation of Alternative Explanations," American Economic Review, American Economic Association, vol. 82(3), pages 371-392, June.
    11. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. BERTINELLI, Luisito, 2003. "Does urbanization always foster human capital accumulation ?," LIDAM Discussion Papers CORE 2003040, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Florian Lehmer & Joachim Möller, 2010. "Interrelations between the urban wage premium and firm-size wage differentials: a microdata cohort analysis for Germany," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 45(1), pages 31-53, August.

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