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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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References

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  1. Postel-Vinay & Robin, 2002. "Equilibrium wage dispersion with worker and employer heterogeneity," Working Papers 155908, Institut National de la Recherche Agronomique, France.
  2. Apps, P.F. & Rees, R., 1996. "Collective Labor Supply and Household Production," Papers 301, Australian National University - Department of Economics.
  3. Wrohlich, Katharina, 2005. "The Excess Demand for Subsidized Child Care in Germany," IZA Discussion Papers 1515, Institute for the Study of Labor (IZA).
  4. 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.
  5. 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.
  6. 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.
  7. Alison Booth & Melvyn Coles, 2010. "Education, Matching, and the Allocative Value of Romance," Journal of the European Economic Association, MIT Press, vol. 8(4), pages 744-775, 06.
  8. 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.
  9. Barbara Petrongolo, 2004. "Gender Segregation in Employment Contracts," CEP Discussion Papers dp0637, Centre for Economic Performance, LSE.
  10. Barbara Petrongolo, 2004. "Gender segregation in employment contracts," LSE Research Online Documents on Economics 3662, London School of Economics and Political Science, LSE Library.
  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. V. Bhaskar & Ted To, 1996. "Minimum Wages for Ronald McDonald Monopsonies: A Theory of Monopsonistic Competition," Labor and Demography 9603001, EconWPA, revised 21 May 1996.
  13. 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.
  14. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
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Citations

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Cited by:
  1. MENDOLICCHIO, Concetta & PAOLINI, Dimitri & PIETRA, Tito, . "Investments in education and welfare in a two-sector, random matching economy," CORE Discussion Papers RP -2501, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Booth, Alison L., 2014. "Wage Determination and Imperfect Competition," IZA Discussion Papers 8034, Institute for the Study of Labor (IZA).
  3. repec:dgr:uvatin:2011116 is not listed on IDEAS
  4. CREMER, Helmuth & PESTIAU, Pierre & RACIONERO, Maria, 2007. "Unequal wages for equal utilities," CORE Discussion Papers 2007095, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. 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.
  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. 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).
  8. Booth, A.L. & Coles, M.G., 2010. "Tax policy and returns to education," Labour Economics, Elsevier, vol. 17(1), pages 291-301, January.

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