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We review and extend the empirical literature that seeks evidence of a wedge between the private and social returns to human capital, specifically education. This literature has two main strands. First, much of modern growth theory puts human capital at center-stage, building on older notions of human capital externalities as an engine of economic growth. Empirical support for these ideas, based on both the comparative growth of national outputs and on the geographic dispersion of wages within countries, is meager. There is a strong association between average earnings and average education across nations and regions in the U.S. that exceeds the private returns to education. However, problems of omitted variables and endogeneity inherent in spatial equilibrium models mean that this association can hardly be understood as evidence for social returns. There is no evidence from this literature that social returns are smaller than private ones, yet neither is there much to suggest that they are larger. We then turn to the literature on job market signaling, which implies that social returns to education are smaller than private returns. Consistent with our earlier conclusions, we find scant evidence of this. We construct a model of the speed of employer learning about workers' unobserved talents, and we estimate the model using panel data on young workers. We find that employer learning about productivity occurs fairly quickly after labor market entry, implying that the signaling effects of schooling are small.

Publisher Summary Among macroeconomists, the shift of research effort is near total, eclipsing the business-cycle focus that had dominated the field for decades. Behind this is a recognition of the enormous welfare implications of sustained economic growth, and a renewed desire to understand the vast differences in living standards among countries, which dates back at least to Smith. What some have called the "neoclassical revival" in growth economics has come to dominate macroeconomic research. Developments in this area should be of particular interest to labor economists because much of the revival of growth economics builds on the theory of human capital. Because human capital is, by definition, embodied skills and knowledge, and because advances in technical knowledge drive economic growth, it follows that human capital accumulation and economic growth are intimately related. This chapter reviews recent developments in growth economics, with a particular focus on labor market and human capital issues.

Publisher Summary This chapter describes the numbers and characteristics of international migrants to selected developed countries, explores some of the economic factors motivating international migration, examines the impact of immigration on the receiving country's labor markets, discusses the extent to which immigrants assimilate to the receiving country's labor market, and presents several studies of immigrants' effects on the social welfare system. The chapter focuses on the experiences of Australia, Canada, and the United States. Increased immigration has a modest impact on the distribution of income, and most of these adverse affects fall on immigrants themselves. These effects may be small as a result of the effects that immigrants have on local labor demand or of changes in natives' migration patterns. First, there is evidence of a significant amount of immigrant assimilation in the US data, although there is less evidence of it in Australian, Canadian, and European data. This result implies that the adverse effects that US immigrants have on wages lessen as they spend more time in the United States. Second, this assimilation does not mean that immigrants' wages approach those of the median native.