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Education, Work and Wages in the UK

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  • Paul Bingley
  • Yu Zhu
  • Ian Walker

Abstract

This paper is concerned with the relationship between education, wages and working behaviour. The work is partly motivated by the sharp distinction in the literature between the returns to education and the effect of wages on labour supply. Education is the investment that cumulates in the form of human capital while labour supply is the utilization rate of that stock. Yet, variation in education is usually the basis for identifying labour supply models - education is assumed to determine wages but not affect labour supply. Moreover, it is commonly assumed that the private rate of return to education can be found from the schooling coefficient in a log-wage equation. Yet, the costs of education are largely independent of its subsequent utilization but the benefits will be higher the greater the utilization rate. Thus the returns will depend on how intensively that capital is utilized and we would expect that those who intend to work least to also invest least in human capital. Indeed, the net (of tax liabilities and welfare entitlements) return to education will be a complex function of labour supply and budget constraint considerations. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2005.

Suggested Citation

  • Paul Bingley & Yu Zhu & Ian Walker, 2005. "Education, Work and Wages in the UK," German Economic Review, Verein für Socialpolitik, vol. 6(3), pages 395-414, August.
  • Handle: RePEc:bla:germec:v:6:y:2005:i:3:p:395-414
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    References listed on IDEAS

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    1. Arnaud Chevalier & Colm Harmon & Vincent O’ Sullivan & Ian Walker, 2013. "The impact of parental income and education on the schooling of their children," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-22, December.
    2. Richard Blundell & Alan Duncan & Costas Meghir, 1998. "Estimating Labor Supply Responses Using Tax Reforms," Econometrica, Econometric Society, vol. 66(4), pages 827-862, July.
    3. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post--secondary Schooling," Economic Journal, Royal Economic Society, vol. 112(482), pages 705-734, October.
    4. Colm Harmon & Hessel Oosterbeek, 2000. "The Returns to Education: A Review of Evidence, Issues and Deficiencies in the Literature," CEE Discussion Papers 0005, Centre for the Economics of Education, LSE.
    5. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
    6. Altonji, Joseph G. & Blank, Rebecca M., 1999. "Race and gender in the labor market," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 48, pages 3143-3259 Elsevier.
    7. repec:hoo:wpaper:e-90-11 is not listed on IDEAS
    8. Kaplan, Greg & Goodman, Alissa & Walker, Ian, 2004. "Understanding the Effects of Early Motherhood in Britain: The Effects on Mothers," IZA Discussion Papers 1131, Institute for the Study of Labor (IZA).
    9. Manuel Arellano & Lars Peter Hansen & Enrique Sentana, 2009. "Underidentification? (Resumen)," Working Papers wp2009_0905, CEMFI.
    10. Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 415-490.
    11. Barbara Sianesi, 2002. "The returns to education: a review of the empirical macro-economic literature," IFS Working Papers W02/05, Institute for Fiscal Studies.
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