Reinventing the Skilled Region: Human Capital Externalities and Industrial Change

Abstract

Bridging the gap between the literatures on industrial change and human capital externalities we investigate whether a broad regional skill base and dynamic labor markets are complementary determinants of local productivity and wages. On the level of regional industries in Germany we find strong evidence for such complementarity. In fact, a high average level of education turns out to be crucial for productivity enhancing industrial change, while human capital externalities arise first and foremost in dynamic labor markets. On the firm level, we find human capital externalities to accrue predominantly to growing firms which benefit from a large supply of highly qualified workers in skilled, dynamic labor markets. Despite the joint impact of human capital and industrial change on productivity, we find only weak evidence that inter-industry differences in job turnover shape the geography of industry location across regions.