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A Microfoundation For Increasing Returns In Human Capital Accumulation And The Under-Participation Trap

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Author Info
Alison Booth ()
Melvyn Coles

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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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File URL: http://cama.anu.edu.au/Working%20Papers/Papers/2007/Booth_Coles_72007.pdf
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Paper provided by Australian National University, Centre for Applied Macroeconomic Analysis in its series CAMA Working Papers with number 2007-07.

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Length: 26 pages
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:acb:camaaa:2007-07

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Find related papers by JEL classification:
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Booth, Alison L & Coles, Melvyn G, 2005. "Education, Matching and the Allocative Value of Romance," CEPR Discussion Papers 5099, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Barbara Petrongolo, 2004. "Gender Segregation in Employment Contracts," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 331-345, 04/05. [Downloadable!] (restricted)
  3. Acemoglu, Daron, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 779-804, August. [Downloadable!] (restricted)
  4. Gronau, Reuben, 1977. "Leisure, Home Production, and Work-The Theory of the Allocation of Time Revisited," Journal of Political Economy, University of Chicago Press, vol. 85(6), pages 1099-1123, December. [Downloadable!] (restricted)
  5. V. Bhaskar & 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. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. Petrongolo, Barbara, 2004. "Gender Segregation in Employment Contracts," CEPR Discussion Papers 4303, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. Bhaskar, V & To, Ted, 1999. "Minimum Wages for Ronald McDonald Monopsonies: A Theory of Monopsonistic Competition," Economic Journal, Royal Economic Society, vol. 109(455), pages 190-203, April. [Downloadable!] (restricted)
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  9. Booth, Alison L & Coles, Melvyn G, 2007. "The Impact of Fiscal Policy on Labour Supply and Education in an Economy with Household and Market Production," CEPR Discussion Papers 6265, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  10. Barbara Petrongolo, 2004. "Gender Segregation in Employment Contracts," CEP Discussion Papers dp0637, Centre for Economic Performance, LSE. [Downloadable!]
  11. Daron Acemoglu & Jorn-Steffen Pischke, 1999. "The Structure of Wages and Investment in General Training," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 539-572, June. [Downloadable!] (restricted)
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  12. 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 Social Sciences, Australian National University. [Downloadable!]
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  13. Apps, Patricia F & Rees, Ray, 1997. "Collective Labor Supply and Household Production," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 178-90, February.
    Other versions:
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Booth, Alison L & Coles, Melvyn G, 2007. "The Impact of Fiscal Policy on Labour Supply and Education in an Economy with Household and Market Production," CEPR Discussion Papers 6265, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Alison L. Booth & Melvyn B. Coles, 2008. "Tax Policy and Returns to Education," CEPR Discussion Papers 591, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
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