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A microfoundation for increasing returns in human capital accumulation and the under-participation trap

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  • Booth, Alison L.
  • Coles, Melvyn

Abstract

This paper considers educational investment, wages and hours of market work in an imperfectly competitive labour market with heterogeneous workers and home production. It investigates the degree to which there might be both underemployment in the labour market and underinvestment in education. A central insight is that the ex-post participation decision of workers endogenously generates increasing marginal returns to education. Although equilibrium implies underinvestment in education, optimal policy is not to subsidise education. Instead it is to subsidise labour market participation which we argue might be efficiently targeted as state-provided childcare support.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 51 (2007)
Issue (Month): 7 (October)
Pages: 1661-1681

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Handle: RePEc:eee:eecrev:v:51:y:2007:i:7:p:1661-1681

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References

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  1. Petrongolo, Barbara, 2004. "Gender Segregation in Employment Contracts," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4303, C.E.P.R. Discussion Papers.
  2. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  3. Acemoglu, Daron, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(3), pages 779-804, August.
  4. Acemoglu, D. & Pischke, J.S., 1997. "The Structure of Wages and Investment in General Training," Working papers 97-24, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Alison Booth & Melvyn Coles, 2010. "Education, Matching, and the Allocative Value of Romance," Journal of the European Economic Association, European Economic Association, European Economic Association, vol. 8(4), pages 744-775, 06.
  6. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, Econometric Society, vol. 70(6), pages 2295-2350, November.
  7. Katharina Wrohlich, 2008. "The excess demand for subsidized child care in Germany," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 40(10), pages 1217-1228.
  8. Apps, Patricia F & Rees, Ray, 1997. "Collective Labor Supply and Household Production," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(1), pages 178-90, February.
  9. Alan Manning & Ted To, 2002. "Oligopsony and Monopsonistic Competition in Labor Markets," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 155-174, Spring.
  10. Alison Booth & Melvyn Coles & Xiaodong Gong, 2006. "Increasing Returns to Education: Theory and Evidence," CEPR Discussion Papers 522, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  11. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
  12. Stevens, Margaret, 1994. "A Theoretical Model of On-the-Job Training with Imperfect Competition," Oxford Economic Papers, Oxford University Press, vol. 46(4), pages 537-62, October.
  13. Bhaskar, V & To, Ted, 1999. "Minimum Wages for Ronald McDonald Monopsonies: A Theory of Monopsonistic Competition," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(455), pages 190-203, April.
  14. Barbara Petrongolo, 2004. "Gender segregation in employment contracts," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 3662, London School of Economics and Political Science, LSE Library.
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Citations

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Cited by:
  1. Alison Booth & Melvyn Coles, 2007. "The Impact Of Fiscal Policy On Labor Supply And Education In An Economy With Household And Market Production," CAMA Working Papers 2007-08, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. CREMER, Helmuth & PESTIEAU, Pierre & RACIONERO, Mario, . "Unequal wages for equal utilities," CORE Discussion Papers RP -2369, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Booth, A.L. & Coles, M.G., 2010. "Tax policy and returns to education," Labour Economics, Elsevier, Elsevier, vol. 17(1), pages 291-301, January.
  4. Booth, Alison L., 2014. "Wage Determination and Imperfect Competition," IZA Discussion Papers 8034, Institute for the Study of Labor (IZA).
  5. Andrea Caragliu & Peter Nijkamp, 2011. "Cognitive Capital and Islands of Innovation: The Lucas Growth Model from a Regional Perspective," Tinbergen Institute Discussion Papers 11-116/3, Tinbergen Institute.
  6. Andrea Caragliu & Peter Nijkamp, 2011. "Cognitive Capital and Islands of Innovation: The Lucas Growth Model from a Regional Perspective," Tinbergen Institute Discussion Papers 11-116/3, Tinbergen Institute.
  7. Mendolicchio, Concetta & Paolini, Dimitri & Pietra, Tito, 2011. "Investments in education and welfare in a two-sector, random matching economy," IAB Discussion Paper 201108, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  8. Booth, Alison L. & Kee, Hiau Joo, 2006. "Intergenerational Transmission of Fertility Patterns in Britain," IZA Discussion Papers 2437, Institute for the Study of Labor (IZA).

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