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Human Capital Spillovers in the Workplace: Labor Diversity and Productivity
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Guy Navon
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Abstract
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The paper studies the relationship between human capital spillovers and productivity
using a unique longitudinal matched employer–employee dataset of Israeli manufacturing
plants that contains individual records on all plant employees. I focus on the within-plant
diversity of employees’ higher-education diplomas (university degrees). The variance
decomposition shows that most knowledge diversity takes place within the industries.
Using a semi-parametric approach, the study finds that hiring workers who are diversified
in their specific knowledge is beneficial for plants’ productivity—the knowledgediversity
elasticity is about 0.2–0.25 and is robust—and that the benefit of knowledge
diversity increase with the size of the plant. This suggests that for each allocation of labor
in the production process it is beneficial for plants to diversify their skilled labor. The
findings also suggest that the conventional way of estimating plant-level production
function using Ordinary Least Squares or Fixed-Effects method is biased upward due to
simultaneity of the inputs and the unobserved productivity shock.
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The full article as a PDF file
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