Education externalities and staying-on in education at 16, 17 and 18 years of age in the UK regions (1983-99).∗

This paper studies the existence and the scale of regional education externalities on the education decisions of teenagers in the UK. First, we develop a simple theoretical model. Then, we test it empirically using data from the UK Labour Force Survey for 17 UK regions over the period 1983-99. We find that the probability of an individual staying-on (and of participating) in education after 16, 17 and 18 years of age is signifi-cantly influenced by the distribution of education within each region. The higher the share of the population in a region with a degree, the higher the probability of remaining in education at sixteen and eighteen years of age, with elasticities of 0.16 and 0.25, respectively; while the ∗I am thankful to my supervisor Christopher Pissarides for his comments and help. I would like to thank Glenda Quintini and Steve Nickell for allowing me to use their regional wage dataset. Finally, I would also like to thank Richard Barwell, Barbara Petrongolo, Steve Pischke, Hillary Steedman and Merxe Tudela for their help and useful comments. All remaining errors are mine. This work is part of my PhD Thesis at the LSE and was carried out while I was a member of the CEP. The views expressed here are those of the author and do not necessarily reflect those of the Bank of England, or the Monetar