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Increasing Returns to Education: Theory and Evidence

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Author Info
Alison Booth () (Economics Program, RSSS, ANU)
Melvyn Coles
Xiaodong Gong ()

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Abstract

We model educational investment and labor supply in a competitive economy with home and market production. Heterogeneous workers are assumed to have different productivities both at home and in the workplace. We show that there are increasing returns to education at the labor market participation margin, and that these depend directly on the elasticity of labor supply with respect to wages. Thus the increasing returns to education problem will be most relevant for women or other types with large enough home productivity. We estimate a three equation recursive model of working hours, wages and years of schooling, and find empirical support for the main predictions of the model.

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Publisher Info
Paper provided by Centre for Economic Policy Research, Research School of Social Sciences, Australian National University in its series CEPR Discussion Papers with number 522.

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Length: 44 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:auu:dpaper:522

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Web page: http://econrsss.anu.edu.au/
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Related research
Keywords: returns to education; home production; labor supply;

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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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References listed on IDEAS
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. Paul Gomme & Richard Rogerson & Peter Rupert & Randall Wright, 2004. "The business cycle and the life cycle," Working Paper 0404, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  2. 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)
    Other versions:
  3. Alison Booth & Hiau Joo Kee, 2005. "Birth Order Matters: The Effect of Family Size and Birth Order on Educational Attainment," CEPR Discussion Papers 506, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
    Other versions:
  4. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier. [Downloadable!] (restricted)
  5. Florence Jaumotte, 2003. "Female Labour Force Participation: Past Trends and Main Determinants in OECD Countries," OECD Economics Department Working Papers 376, OECD, Economics Department. [Downloadable!]
  6. Susumu Imai & Michael P. Keane, 2004. "Intertemporal Labor Supply and Human Capital Accumulation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 601-641, 05. [Downloadable!] (restricted)
  7. Orley Ashenfelter & Cecilia Rouse, 1998. "Income, Schooling, And Ability: Evidence From A New Sample Of Identical Twins," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 253-284, February. [Downloadable!] (restricted)
    Other versions:
  8. Apps, Patricia F. & Rees, Ray, 1997. "Individual vs. Joint Taxation in Models with Household Production," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich.
  9. 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)
  10. 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)
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  11. 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)
  12. Rios-Rull, Jose-Victor, 1993. "Working in the Market, Working at Home, and the Acquisition of Skills: A General-Equilibrium Approach," American Economic Review, American Economic Association, vol. 83(4), pages 893-907, September. [Downloadable!] (restricted)
  13. Sandra E. Black & Paul J. Devereux & Kjell G. Salvanes, 2005. "The More the Merrier? The Effect of Family Size and Birth Order on Children's Education," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 669-700, May.
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  14. Rosen, Sherwin, 1983. "Specialization and Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 43-49, January. [Downloadable!] (restricted)
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Cited by:
(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. Alison L. Booth & Melvyn Coles, 2006. "A Microfoundation for Increasing Returns in Human Capital Accumulation and the Under-Participation Trap," CEPR Discussion Papers 543, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
    Other versions:
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