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Human Capital Spillovers and Local Unemployment

Jung Hyun Choi and Richard K. Green
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.