Handbook of Regional and Urban Economics

Chapter 51

Human Capital Externalities in Cities

Enrico Moretti

JEL classification: J0, I2, H23

Abstract

What is the effect of an increase in the overall level of human capital on the economy of a city? Although much is known about the private return to education, much less is known about the more important question of what happens to productivity, wages and land prices when the aggregate stock of human capital in a city increases. Increases in the aggregate stock of human capital can benefit society in ways that are not fully reflected in the private return of education. Human capital spillovers can in theory increase aggregate productivity over and above the direct effect of human capital on individual productivity. Furthermore, increases ...