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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.

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
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    References listed on IDEAS

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    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.
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    7. 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.
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    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.

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    Keywords

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    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

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