Human Capital Spillovers and Local Unemployment

This paper examines the magnitude of human capital spillovers on unemployment. Using both
individual and metropolitan level data, we find that the adult population share of college
graduates is negatively associated with the unemployment rate. More specifically, we find that
those who reside in MSAs with higher shares of college graduates are more likely to be
employed, even after controlling for individual, MSA and state level factors including individual’s
own education level. The likelihood of being unemployed falls further for the non-college
graduates compared to the college graduates. We also find that MSAs with higher shares of
college graduates have lower average unemployment rates. This education spillover is not
transitory but is an important factor that explains long-term divergences in the MSA
unemployment rates.