Social returns to human capital.

• Author: Moretti, Enrico

My research focuses on different areas in applied microeconomics. One of these areas is the economics of education. My work on this area centers on the issue of social returns to human capital. After 40 years of research on the relationship between education and earnings, economists now have a solid understanding of the private benefits of schooling. But much less is known about the social returns to education, even though economists have speculated about the possibility of human capital externalities for at least a century. Theory predicts that increases in the overall level of education can benefit society in ways that are not fully reflected in the wages of educated workers. Human capital spillovers may increase productivity over and above the direct effect of education on individual productivity. Furthermore, increases in education also may reduce criminal participation and improve voters' political behavior.

The possibility that the social return to human capital differs from its private return has tremendous practical importance. For example, the magnitude of the social return to education is a crucial tool for assessing the efficiency of public investment in education, since state and local governments subsidize almost all direct operating costs of primary and secondary educational institutions. In fact, much of the argument for public education is based on the recognition that education not only rewards the educated individual, but also creates a variety of benefits that are shared by society at large.

Despite the significant policy implications and a large theoretical literature that assumes the existence of spillovers from education, empirical evidence on the magnitude of these spillovers is limited. My papers in this area try to Fill this gap.

Education, Productivity, and Wages

In three related papers, I focus on the effect of changes in the overall level of human capital on productivity and wages. A large body of theoretical literature in macroeconomics and urban economics has argued that productivity spillovers are important determinants of economic growth. These spillovers arise if the presence of educated workers makes other workers more productive. In this case, an increase in aggregate human capital will have an effect on aggregate productivity that is quite different from the effect of an increase in individual education on individual productivity.

Using a unique firm-worker matched dataset, obtained by combining the Census of Manufacturers with the Census of Population, I assess the magnitude of productivity spillovers from education in U.S. cities by estimating plant-level production functions. (1) While other studies have attempted to measure spillovers by looking at cross-city differences in wages, this is the first study to measure spillovers by directly focusing on firms' productivity. I find that the...