Specialization in Higher Education and Economic Growth
This paper presents a new market failure in the decision on educational type in higher education. Individuals choose types of education with different degrees of specialization. Labor market transformation makes some individuals opt for a non-specialized education type that broadens the future career possibilities in an uncertain labor market. However, the growth rate in the economy is assumed to positively depend on the amount of specialized workers that get a job within their specialized field. Imposing a tax and transfer scheme in favor of specialized education types may correct for the market failure and Pareto improve the economy if the transfer attracts a sufficiently large amount of new students to a specialized education type and if their effect on the growth rate is substantial.
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