Local Human Capital Spillovers
Using 2001-2018 administrative tax records for nearly all adult residents in the Toronto metropolitan region, this paper estimates the profiles of human capital externalities that operate between neighbours in their residential locations. Using a high dimensional fixed effects framework, estimates relate annual earnings or employment status to various aggregations of fixed components of these same outcomes for neighbours within 75 meters. We find evidence of small average human capital spillovers with considerable heterogeneity across individual and neighbourhood attributes. While the average elasticity of human capital with respect to its average fixed component among peers is 0.025, spillovers can be more than three times larger when imparted on low human capital individuals. In contrast, while above median human capital individuals impart positive spillovers, they do not benefit from being surrounded by more highly skilled peers. A model of labour supply and human capital accumulation shows how larger estimated peer effects for employment outcomes can be interpreted as reservation wage spillovers. Both human capital and reservation wage spillovers exhibit very rapid spatial decay and the former exhibits rapid temporal decay.
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