Firm-Level Social Returns to Education

Abstract

Do workers benefit from the education of their co-workers? This question is examined first by introducing a model of on-the-job schooling, which argues that educated workers may transfer part of their general skills to uneducated workers and that this spillover is affected by the degrees of non-excludability, irreversibility and generality of those skills. We then conduct an empirical analysis drawing on a matched panel of Portuguese firms and their workers. Schooling endogeneity is tackled by considering firm fixed effects and instruments based on schooling lags and the lagged share of retirement-age workers. We find evidence of large firm-level social returns (ranging between 14% and 23% - and thus exceeding standard estimates of private returns) and of significant returns accruing to less educated workers but not to their more educated colleagues.

Keywords: education, spillovers, matched employer-employee data, wages, endogenous growth

JEL Classification: J24, J31, I20