The Contribution of Educated Workers to Firms' Efficiency Gains: The Key Role of Proximity to the 'Local' Frontier

Vandenbussche et al. (J Econ Growth 11(2):97-127, 2006) and Aghion et al. (in: Romer, Wolfers (eds) Brookings papers on economic activity: conference draft, Brookings, Washington, 2009) show that when economies operate close to the technological frontier, their ability to generate efficiency gains rests on the contribution of workers with advanced forms of education (i.e. tertiary). The contribution of this empirical paper is to revisit and improve the analysis of that assumption, in the context of firms located in advanced economics, assuming that what holds for OECD countries or US states should also be observed also at a more disaggregated level. To that end, we analyse a rich panel of Belgian firm-level data, covering the 2008-14 period. In the first step, we estimate each firm's proximity to frontier using stochastic frontier methods. Step 2 consists in regressing each firm's efficiency growth rate on (1) the share of workers by education attainment (2) its (initial) distance/proximity to the frontier and (3) (the main variable of interest) the interaction between (1) and (2), whose sign provides a direct test of the Vandenbussche/Aghion assumption. The main result of the paper supports the idea that the closer the firms are to what amounts to a local frontier; the more educated workers-in particular those with a master's degree-matter for efficiency gains. The paper also shows that many of them are currently employed in firms that are distant from the efficiency frontier. Reallocating them would have a positive impact on overall efficiency.