The attenuation of human capital spillovers

This paper uses 2000 Census data to estimate the relationship of agglomeration and proximity to human capital to wages. The paper takes a geographic approach, and focuses on the attenuation of agglomeration and human capital effects. Differencing and instrumental variable methods are employed to address endogeneity in the wage–agglomeration relationship and also to deal with measurement error in our agglomeration and human capital variables. Three key results are obtained. First, the spatial concentration of employment within five miles is positively related to wage. Second, the benefits of spatial concentration are driven by proximity to college educated workers, an instance of human capital spillovers. Third, these effects attenuate sharply with distance.