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Human Capital and Earnings: British Evidence and a Critique (1979)

In: Tackling Inequality

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  • G. Psacharopoulos

Abstract

What is the private rate of return to schooling and to on-the-job training? And how far does human capital explain the inequality of earnings? We try to answer these questions for Britain for a random sample of about 7000 employed males. Basically, we use the framework of Mincer (1974), but at some important points we find this unsatisfactory, and offer our own critique.1 In Mincer’s regression approach log earnings are regressed on schooling, work experience and experience squared. (The effects of experience are held to reflect the influence of costly investment in on-the-job training.) But this method only yields valid estimates of the direct effects of schooling on earnings if there is no relationship between schooling and the amount of post-school investment and its profitability. A necessary (though not sufficient) condition for this to be true is that the profiles of log-earnings, as experience varies, are vertically parallel for all schooling groups. Casual inspection is not sufficient to verify whether this is so. So the obvious approach is to specify a model in which the pattern of post-school investment and its profitability are allowed to depend on schooling. Such a model also allows one to estimate the rate of return to on-the-job training.

Suggested Citation

  • G. Psacharopoulos, 1999. "Human Capital and Earnings: British Evidence and a Critique (1979)," Palgrave Macmillan Books, in: Tackling Inequality, chapter 8, pages 126-154, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-37528-4_8
    DOI: 10.1057/9780230375284_8
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