Job Matching Efficiency in Skilled Regions: Evidence on the Microeconomic Foundations of Human Capital Externalities

Abstract

Inspired by the literature on the role of local career networks for the quality of labour market matches we investigate whether human capital externalities arise from a higher job matching efficiency in skilled regions. Using two samples of workers in Germany we find that an increase in the regional share of highly qualified workers by one standard deviation is associated with between-job wage growth of about five per cent and with an increase in the annual probability of a job change of about sixty per cent. Wage gains are incurred only by workers changing jobs within industries. We find highly qualified workers in skilled regions to respond to these wage differentials by changing jobs more often within rather than between industries. Taken together, these findings suggest that human capital externalities partly arise because workers in skilled regions have better access to labour market information, which allows them to capitalize on their industry-specific knowledge when changing jobs.