We analyze human capital externalities within the firm using the Wage Structure Survey containing matched data for workers and establishments in Spain. We find that the average number of years of education of a firm’s employees has a very significant and quantitatively important positive effect on all employees’ pay. The effect is robust to the inclusion of all the usual controls for workers’ and firms’ characteristics and is largest for workers with the highest education level. Once we take into account the impact of individual education on the average education in the hiring firm and the spillovers of education, we find an individual return to education similar to that suggested by previous work, but a much larger social return. Moreover, wages also increase with co-workers’ seniority within the firm and previous potential experience outside the firm.

Key words: Education, Human capital, Externalities, Spillovers,Wages.
JEL classification: J24, J31, I20.