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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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Related research

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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References

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  1. Richter, Wolfram F., 2009. "Taxing education in Ramsey's tradition," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1254-1260, December.
  2. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, May.
  3. 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, vol. 2009(1), pages 1-29.
  4. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66, pages 281.
  5. James J. Heckman & Lance J. Lochner & Petra E. Todd, 2008. "Earnings Functions and Rates of Return," Journal of Human Capital, University of Chicago Press, vol. 2(1), pages 1-31.
  6. Dan Anderberg, 2008. "Optimal Policy and the Risk Properties of Human Capital Reconsidered," CESifo Working Paper Series 2451, CESifo Group Munich.
  7. Michael P. Keane, 2011. "Labor Supply and Taxes: A Survey," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 961-1075, December.
  8. Pedro Carneiro & James J. Heckman & Edward J. Vytlacil, 2011. "Estimating Marginal Returns to Education," American Economic Review, American Economic Association, vol. 101(6), pages 2754-81, October.
  9. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  10. Wolfram F. Richter, 2010. "Efficient Education Policy - A Second-Order Elasticity Rule," CESifo Working Paper Series 2969, CESifo Group Munich.
  11. Robert J. Willis & Sherwin Rosen, 1978. "Education and Self-Selection," NBER Working Papers 0249, National Bureau of Economic Research, Inc.
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