De Economist

pp 1–26 | Cite as

Estimating the Skill Bias in Agglomeration Externalities and Social Returns to Education: Evidence from Dutch Matched Worker-Firm Micro-Data

  • Stefan P. T. GrootEmail author
  • Henri L. F. de Groot


This paper employs a unique set of micro-data covering almost one-third of the Dutch labor force, to estimate the heterogeneity of agglomeration externalities across education levels. This paper shows that there is substantial heterogeneity in the relationship between agglomeration and productivity of workers (proxied by their hourly wage) with different educational background. Apart from estimating the impact of the aggregate density of regional labor markets, we also estimate whether the composition of the local labor market in terms of education is related to the productivity of different types of workers. Using the presence of universities as an instrument, we estimate the effect of the supply of university graduates on wages, i.e. the social return to education. We find that agglomeration externalities are substantially higher for high- and medium skilled than for low-skilled employees. We find no positive effects from the presence of high-skilled on the productivity of low-skilled.


Agglomeration, Education, Knowledge-spillovers, Wages, Local labor markets 

JEL Classification

J3 I2 



  1. Acemoglu, D., & Angrist, J. (2000). How large are human-capital externalities? Evidence from compulsory schooling laws. NBER Macroeconomics Annual, 15, 9–59.CrossRefGoogle Scholar
  2. Beaudry, C., & Schiffauerova, A. (2009). Who’s right, Marshall or Jacobs? The localization versus urbanization debate. Research Policy,38, 318–337.CrossRefGoogle Scholar
  3. Briant, A., Combes, P. P., & Lafourcade, M. (2010). Dots to boxes: Do the size and shape of spatial units jeopardize economic geography estimations? Journal of Urban Economics,67, 287–302.CrossRefGoogle Scholar
  4. Canton, E. (2009). Human capital externalities and proximity: Evidence from repeated cross-sectional data. De Economist,157, 79–105.CrossRefGoogle Scholar
  5. Ciccone, A. (2000). Agglomeration effects in Europe. European Economic Review,46, 213–227.CrossRefGoogle Scholar
  6. Ciccone, A., & Hall, R. E. (1996). Productivity and the density of economic activity. American Economic Review,86, 54–70.Google Scholar
  7. Combes, P. P., Duranton, G., & Gobillon, L. (2008). Spatial wage disparities: sorting matters. Journal of Urban Economics,63, 723–742.CrossRefGoogle Scholar
  8. Combes, P. P., Duranton, G., Gobillon, L., Puga, D., & Roux, S. (2010). Estimating agglomeration effects with history, geology, and worker fixed-effects. In E. L. Glaeser (Ed.), Agglomeration economics (pp. 15–66). Chicago, IL: Chicago University Press.CrossRefGoogle Scholar
  9. Combes, P. P., & Gobillon, L. (2015). The empirics of agglomeration economies. Handbook of Regional and Urban Economics,5, 247–348.CrossRefGoogle Scholar
  10. De Groot, H. L. F., Poot, J., & Smit, M. J. (2016). Which agglomeration externalities matter most and why? Journal of Economic Surveys,30, 756–782.CrossRefGoogle Scholar
  11. De la Roca, J., & Puga, D. (2017). Learning by working in big cities. The Review of Economic Studies, 84, 106–142.CrossRefGoogle Scholar
  12. Duranton, G. (2010). The economics of clusters: Lessons from the French experience. Oxford: Oxford University Press.CrossRefGoogle Scholar
  13. Duranton, G., & Puga, D. (2004). Micro-foundations of urban agglomeration economies. In V. Henderson & J. Thisse (Eds.), Handbook of regional and urban economics (pp. 2063–2117). Amsterdam: North-Holland.Google Scholar
  14. Fujita, M. M. (1989). Urban economic theory. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  15. Fujita, M. M., Krugman, P., & Venables, A. J. (1999). The spatial economy: Cities, regions, and international trade. Cambridge, MA: MIT Press.CrossRefGoogle Scholar
  16. Fujita, M. M., & Thisse, J. (2002). Economics of agglomeration-cities, industrial location and regional growth. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  17. Glaeser, E. L., Kallal, H. D., Scheinkman, J. A., & Shleifer, A. (1992). Growth in cities. Journal of Political Economy,100, 1126–1152.CrossRefGoogle Scholar
  18. Glaeser, E. L., & Maré, D. C. (2001). Cities and skills. Journal of Labor Economics,19, 316–342.CrossRefGoogle Scholar
  19. Graham, D. J., Melo, P. C., Jiwattanakulpaisarn, P., & Noland, R. B. (2010). Testing for bi-directional causality between productivity and agglomeration economies. Journal of Regional Science,50, 935–951.CrossRefGoogle Scholar
  20. Groot, S. P. T. (2013). Agglomeration, globalization and regional labor markets: Micro-evidence for the Netherlands, Tinbergen Institute Research Series, 553. Amsterdam: Vrije Universiteit.Google Scholar
  21. Groot, S. P. T., de Groot, H. L. F., & Smit, M. J. (2014). Regional wage differences in the Netherlands: Evidence, trends and explanations. Journal of Regional Science,54, 503–523.Google Scholar
  22. Groot, S. P. T., & Weterings, A. (2013). Internationalisation and firm productivity: Firm and regional level effects. In CBS, internationalisation monitor 2013, The Hague.Google Scholar
  23. Harvey, D. (1981). The urban process under capitalism: A framework for analysis. In M. J. Dear & A. J. Scott (Eds.), Urbanization and urban planning in capitalist society (pp. 91–122). London: Taylor and Francis.Google Scholar
  24. Henderson, J. V. (1988). Urban development, theory, fact, and illusion. Oxford: Oxford University Press.Google Scholar
  25. Henderson, J. V. (2003). Marshall’s scale economies. Journal of Urban Economics,53, 1–28.CrossRefGoogle Scholar
  26. Horan, P. M., & Tolbert, C. M. (1984). The organization of work in rural and urban labor markets. Boulder: Westview Press.Google Scholar
  27. Jacobs, J. (1969). The economy of cities. New York: Random House.Google Scholar
  28. Jaffe, A. B., Trajtenberg, M., & Henderson, R. (1993). Geographic localization of knowledge spillovers as evidenced by patent citations. Quarterly Journal of Economics,108, 577–598.CrossRefGoogle Scholar
  29. Lucas, R. E. (1988). On the mechanics of economic development. Journal of Monetary Economics,22, 3–42.CrossRefGoogle Scholar
  30. Marshall, A. (1890). Principles of economics. London: Macmillan.Google Scholar
  31. Melo, P. C., Graham, D. J., & Noland, R. (2009). A meta-analysis of estimates of urban agglomeration economies. Regional Science and Urban Economics,39, 332–342.CrossRefGoogle Scholar
  32. Mincer, J. (1974). Schooling, experience, and earnings. New York: NBER.Google Scholar
  33. Moretti, E. (2004). Estimating the external return to education: Evidence from longitudinal and repeated cross-sectional data. Journal of Econometrics,121, 175–212.CrossRefGoogle Scholar
  34. Moulton, B. R. (1990). An illustration of a pitfall in estimating the effects of aggregate variables on micro units. Review of Economics and Statistics,72, 334–338.CrossRefGoogle Scholar
  35. Porter, M. E. (1990). The competitive advantage of nations. Houndmills: Macmillan.CrossRefGoogle Scholar
  36. Puga, D. (2010). The magnitude and causes of agglomeration economies. Journal of Regional Science,50, 203–219.CrossRefGoogle Scholar
  37. Rauch, J. E. (1993). Productivity gains from geographic concentration of human capital: Evidence from the cities. Journal of Urban Economics,34, 380–400.CrossRefGoogle Scholar
  38. Rosenthal, S. S., & Strange, W. C. (2004). Evidence on the nature and sources of agglomeration economies. In J. V. Henderson & J. Thisse (Eds.), Handbook of urban and regional economics (pp. 2119–2171). Amsterdam: Elsevier.Google Scholar
  39. Schulz, T. P. (1988). Education investment and returns. In H. Chenery & T. N. Srinivasan (Eds.), Handbook of development economics (pp. 543–630). Amsterdam: North-Holland.Google Scholar
  40. Smith, A. (1776). The wealth of nations. Lawrence: Publishing.Google Scholar
  41. Thompson, W. R. (1965). A preface to urban economics. Baltimore: John Hopkins University Press.Google Scholar
  42. Van Bergeijk, P. A. G., Fortanier, F., Garretsen, J. H., de Groot, H. L. F., & Moons, S. J. V. (2011). Productivity and internationalization: A micro-data approach. De Economist,159, 381–388.CrossRefGoogle Scholar
  43. Verstraten, P., Verweij, G., & Zwaneveld, P. J. (2019). Complexities in the spatial scope of agglomeration externalities. Journal of Regional Science,59, 29–55.CrossRefGoogle Scholar
  44. Wooldridge, J. M. (2002). Econometric analysis of cross section and panel data. Cambridge, MA: MIT Press.Google Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.CPB Netherlands Bureau for Economic Policy AnalysisThe HagueThe Netherlands
  2. 2.Department of Spatial EconomicsVrije Universiteit AmsterdamAmsterdamThe Netherlands
  3. 3.Tinbergen InstituteAmsterdam, RotterdamThe Netherlands
  4. 4.Ecorys NEIRotterdamThe Netherlands

Personalised recommendations