The literature on schooling externalities in U.S. cities and states is rather mixed: positive external effects of average education levels are hardly found while positive externalities from the share of college graduates are more often identified. We propose a simple model to reconcile this mixed evidence. Our model predicts positive externalities from increased college education and negligible external effects from high school education. Using compulsory attendance/child labor laws, push-driven immigration of highly educated workers, and the location of land-grant colleges as instruments for schooling attainments, we test and confirm the model predictions with data on U.S. states for the period 1960–2000.

We study the relation between workers’ skill dispersion and firm productivity using a unique data set of Italian manufacturing firms with individual records on all their workers. Our measure of skill is the individual worker’s effect from a wage equation. We find that a firm’s productivity is positively related to skill dispersion within occupational status groups (production and nonproduction workers) and negatively related to skill dispersion between these groups. Consistently, most of the overall skill dispersion is within and not between firms. These findings are consistent with some recent hierarchical models of the firms’ organizational structure.