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A Microfoundation for Increasing Returns in Human Capital Accumulation and the Under-Participation Trap

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  • Alison L. Booth
  • Melvyn Coles

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 endogeneously 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

Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 543.

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Date of creation: Dec 2006
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Handle: RePEc:auu:dpaper:543

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Keywords: Education; home production; hours of work; imperfect competition.;

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  1. 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.
  2. Postel-Vinay & Robin, 2002. "Equilibrium wage dispersion with worker and employer heterogeneity," Working Papers 155908, Institut National de la Recherche Agronomique, France.
  3. Apps, P.F. & Rees, R., 1996. "Collective Labor Supply and Household Production," Papers 301, Australian National University - Department of Economics.
  4. Alison Booth & Melvyn Coles, 2010. "Education, Matching, and the Allocative Value of Romance," Journal of the European Economic Association, European Economic Association, vol. 8(4), pages 744-775, 06.
  5. 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.
  6. 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.
  7. Katharina Wrohlich, 2008. "The excess demand for subsidized child care in Germany," Applied Economics, Taylor & Francis Journals, vol. 40(10), pages 1217-1228.
  8. Daron Acemoglu & Jorn-Steffen Pischke, 1998. "The Structure of Wages and Investment in General Training," NBER Working Papers 6357, National Bureau of Economic Research, Inc.
  9. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
  10. 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.
  11. 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.
  12. Booth, Alison L & Coles, Melvyn G & Gong, Xiaodong, 2007. "Increasing Returns to Education: Theory and Evidence," CEPR Discussion Papers 6266, C.E.P.R. Discussion Papers.
  13. Barbara Petrongolo, 2004. "Gender segregation in employment contracts," LSE Research Online Documents on Economics 3662, London School of Economics and Political Science, LSE Library.
  14. 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, vol. 39(2), pages 257-73, May.
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Cited by:
  1. repec:dgr:uvatin:2011116 is not listed on IDEAS
  2. Alison L. Booth & Hiau Joo Kee, 2009. "Intergenerational Transmission of Fertility Patterns," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(2), pages 183-208, 04.
  3. Mendolicchio, Concetta & Paolini, Dimitri & Pietra, Tito, 2012. "Investments in education and welfare in a two-sector, random matching economy," Journal of Mathematical Economics, Elsevier, vol. 48(6), pages 367-385.
  4. 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.
  5. 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 Economics, Australian National University.
  6. Helmuth Cremer & Pierre Pestieau & Maria Racionero, 2011. "Unequal wages for equal utilities," International Tax and Public Finance, Springer, vol. 18(4), pages 383-398, August.
  7. Booth, Alison L., 2014. "Wage Determination and Imperfect Competition," IZA Discussion Papers 8034, Institute for the Study of Labor (IZA).
  8. 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.

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