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

  • Richter, Wolfram F.


    (TU Dortmund)

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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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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  1. Michael P. Keane, 2011. "Labor Supply and Taxes: A Survey," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 961-1075, December.
  2. Dan Anderberg, 2008. "Optimal Policy and the Risk Properties of Human Capital Reconsidered," CESifo Working Paper Series 2451, CESifo Group Munich.
  3. 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.
  4. Carneiro, Pedro & Heckman, James J. & Vytlacil, Edward, 2010. "Estimating Marginal Returns to Education," IZA Discussion Papers 5275, Institute for the Study of Labor (IZA).
  5. 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.
  6. Richter, Wolfram F., 2009. "Taxing education in Ramsey's tradition," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1254-1260, December.
  7. Robert J. Willis & Sherwin Rosen, 1978. "Education and Self-Selection," NBER Working Papers 0249, National Bureau of Economic Research, Inc.
  8. 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.
  9. Heckman, James J. & Lochner, Lance John & Todd, Petra E., 2008. "Earnings Functions and Rates of Return," IZA Discussion Papers 3310, Institute for the Study of Labor (IZA).
  10. repec:zbw:rwirep:0140 is not listed on IDEAS
  11. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, December.
  12. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66, pages 281.
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