Human capital and wages: evidence for external effects from the UK regions

Abstract

A large panel of regional UK data is used to provide detailed estimates of the direct and external effects of education and labour market experience on wages. The results offer strong evidence in support of the predictions of the endogenous growth theory (Lucas, 1988), where the - spatial or sectoral - concentration of human capital is expected to generate increasing returns in the production process. The findings are stronger for labour market experience, while no supportive evidence is found for the case of years of schooling. Possibly, better data on the quality of educational qualifications could offer a better measurement of the external education effects.