Human capital spillovers in the workplace: evidence for the service sector in Britain

Abstract

An individual's human capital has a strong influence in earnings. Yet, individual worker‐level estimations of earnings rarely include the characteristics of co‐workers or detailed firm‐level controls. In particular, co‐workers skills are ignored which may be particularly significant where team work is important. This paper utilises a unique matched work‐place data set to estimate the effect on the earnings of co‐workers' education and training in the Hotel and Catering sector, which contains a high proportion of low paying establishments and in the Retail sector which contains a large absolute number of low paying establishments. The data are derived from the 1998 British Workplace Employment Relations Survey. This is a national sample based on interviews with managers in 2,191 establishments with at least ten workers. In addition, a survey of up to 25 randomly selected employees in each establishment was undertaken which included questions on education, training, pay and job satisfaction, as well as a range of other personal and workplace characteristics. We have, therefore, a matched workplace employee sample which is essential for this type of analysis. The results suggest that there are strong co‐worker effects in the earnings of individuals when controlling the individual's own level of education. While there are also high returns to training for individual workers, there are no similar spillover effects from the training of co‐workers in these sectors. Nevertheless, this suggests that there could well be a pay‐off to the professionalisation of service sector jobs.