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Mincer Equation, Power Law of Learning, and Efficient Education Policy

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  • Richter, Wolfram F.

    ()
    (TU Dortmund)

Abstract

The basis for the empirical research on earnings determination is the Mincer equation. Individuals are assumed to make schooling decisions by maximizing earnings. Leisure costs of schooling and labour supply are neglected which has some empirically implausible implications. This paper shows a way of deriving a Mincer-type earnings function from the more standard assumption of utility maximization. The implications are less questionable. The approach allows one to analyse the efficiency of education policy in Ramsey's tradition. Distortive wage taxation is shown to provide reason for subsidizing education in effective terms. Second-best policy is confronted with empirical evidence on OECD countries.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7280.

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Length: 30 pages
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7280

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Keywords: Mincer equation; earnings determination; maximizing utility vs. earnings; power law of learning; second-best taxation in Ramsey's tradition; education elasticity rule;

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  1. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, National Bureau of Economic Research, Inc, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  2. Carneiro, Pedro & Heckman, James J. & Vytlacil, Edward, 2010. "Estimating Marginal Returns to Education," IZA Discussion Papers 5275, Institute for the Study of Labor (IZA).
  3. James J. Heckman & Lance J. Lochner & Petra E. Todd, 2008. "Earnings Functions and Rates of Return," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers, University of Western Ontario, CIBC Centre for Human Capital and Productivity 20082, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  4. Willis, Robert J & Rosen, Sherwin, 1979. "Education and Self-Selection," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(5), pages S7-36, October.
  5. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number minc74-1.
  6. Michael Keane, 2010. "Labor Supply and Taxes: A Survey," Working Paper Series, Finance Discipline Group, UTS Business School, University of Technology, Sydney 160, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  7. Wolfram F. Richter, 2009. "Taxing Education in Ramsey's Tradition," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0140, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  8. Wolfram F. Richter, 2011. "Efficient Education Policy - A Second-Order Elasticity Rule," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 67(1), pages 1-7, March.
  9. Hubert Strauss & Christine de la Maisonneuve, 2009. "The wage premium on tertiary education: New estimates for 21 OECD countries," OECD Journal: Economic Studies, OECD Publishing, OECD Publishing, vol. 2009(1), pages 1-29.
  10. Dan Anderberg, 2009. "Optimal Policy and the Risk-Properties of Human Capital Reconsidered," 2009 Meeting Papers, Society for Economic Dynamics 166, Society for Economic Dynamics.
  11. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 66, pages 281.
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