IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp7280.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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.

Suggested Citation

  • Richter, Wolfram F., 2013. "Mincer Equation, Power Law of Learning, and Efficient Education Policy," IZA Discussion Papers 7280, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp7280
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp7280.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Willis, Robert J & Rosen, Sherwin, 1979. "Education and Self-Selection," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 7-36, October.
    2. Richter, Wolfram F., 2009. "Taxing education in Ramsey's tradition," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1254-1260, December.
    3. 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.
    4. 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.
    5. Pedro Carneiro & James J. Heckman & Edward J. Vytlacil, 2011. "Estimating Marginal Returns to Education," American Economic Review, American Economic Association, vol. 101(6), pages 2754-2781, October.
    6. Anderberg, Dan, 2009. "Optimal policy and the risk properties of human capital reconsidered," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1017-1026, October.
    7. O. Ashenfelter & D. Card (ed.), 1999. "Handbook of Labor Economics," Handbook of Labor Economics, Elsevier, edition 1, volume 3, number 3.
    8. Michael P. Keane, 2011. "Labor Supply and Taxes: A Survey," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 961-1075, December.
    9. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, January.
    10. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863, Elsevier.
    11. 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.
    12. Wolfram F. Richter, 2011. "Efficient Education Policy - A Second-Order Elasticity Rule," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 67(1), pages 1-7, March.
    13. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66(4), pages 281-281.
    14. Jacob A. Mincer, 1974. "Schooling and Earnings," NBER Chapters, in: Schooling, Experience, and Earnings, pages 41-63, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Carlos Bethencourt & Lars Kunze, 2017. "Temptation and the efficient taxation of education and labor," Metroeconomica, Wiley Blackwell, vol. 68(4), pages 986-1000, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wolfram F. Richter & Kerstin Schneider, 2021. "Education: Optimal choice and efficient policy," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(2), pages 840-863, May.
    2. Bhuller, Manudeep & Mogstad, Magne & Salvanes, Kjell G., 2011. "Life-Cycle Bias and the Returns to Schooling in Current and Lifetime Earnings," IZA Discussion Papers 5788, Institute of Labor Economics (IZA).
    3. P. Lovaglio & S. Verzillo, 2016. "Heterogeneous economic returns to higher education: evidence from Italy," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(2), pages 791-822, March.
    4. Belzil, Christian, 2007. "The return to schooling in structural dynamic models: a survey," European Economic Review, Elsevier, vol. 51(5), pages 1059-1105, July.
    5. Polachek, Solomon W., 2008. "Earnings Over the Life Cycle: The Mincer Earnings Function and Its Applications," Foundations and Trends(R) in Microeconomics, now publishers, vol. 4(3), pages 165-272, April.
    6. Sánchez-Romero, Miguel & d׳Albis, Hippolyte & Prskawetz, Alexia, 2016. "Education, lifetime labor supply, and longevity improvements," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 118-141.
    7. 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.
    8. Kyle Glenn, 2021. "Social Labor vs Human Capital: Competing Theories of Skills," Working Papers 2115, New School for Social Research, Department of Economics.
    9. Hector Espinoza & Stefan Speckesser, 2019. "A Comparison of Earnings Related to Higher Level Vocational/Technical and Academic Education," National Institute of Economic and Social Research (NIESR) Discussion Papers 502, National Institute of Economic and Social Research.
    10. Thomas Dohmen & Armin Falk, 2010. "You Get What You Pay For: Incentives and Selection in the Education System," Economic Journal, Royal Economic Society, vol. 120(546), pages 256-271, August.
    11. Pablo Lavado & Nelson Oviedo & Hernán Ruffo, 2016. "Destruction of Cognitive and Noncognitive Skills in Adulthood," Working Papers 16-07, Centro de Investigación, Universidad del Pacífico.
    12. Fortin, Bernard & Ragued, Safa, 2017. "Does temporary interruption in postsecondary education induce a wage penalty? Evidence from Canada," Economics of Education Review, Elsevier, vol. 58(C), pages 108-122.
    13. Huggett, Mark & Ventura, Gustavo & Yaron, Amir, 2006. "Human capital and earnings distribution dynamics," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 265-290, March.
    14. Angel de la Fuente & Antonio Ciccone, 2003. "Human capital in a global and knowledge-based economy," UFAE and IAE Working Papers 562.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    15. Mustafizur Rahman & Marzuka Md. Al-Hasan, 2019. "Women in Bangladesh Labour Market: Determinants of Participation, Gender Wage Gap and Returns to Schooling," CPD Working Paper 124, Centre for Policy Dialogue (CPD).
    16. Serneels, Pieter & Beegle, Kathleen & Dillon, Andrew, 2017. "Do returns to education depend on how and whom you ask?," Economics of Education Review, Elsevier, vol. 60(C), pages 5-19.
    17. Jesus Crespo Cuaresma & Anna Raggl, 2016. "The dynamics of returns to education in Uganda: National and subnational trends," Development Policy Review, Overseas Development Institute, vol. 34(3), pages 385-422, May.
    18. Laura DIACONU (MAXIM), 2014. "Education and labour market outcomes in Romania," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 5, pages 99-112, June.
    19. Gonzalo Castex, 2017. "College risk and return," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 91-112, October.
    20. Sungwon Lee, 2021. "Partial Identification and Inference for Conditional Distributions of Treatment Effects," Papers 2108.00723, arXiv.org, revised Nov 2023.

    More about this item

    Keywords

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

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp7280. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.