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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. Pedro Carneiro & James J. Heckman & Edward J. Vytlacil, 2011. "Estimating Marginal Returns to Education," American Economic Review, American Economic Association, vol. 101(6), pages 2754-81, October.
  2. James J. Heckman & Lance J. Lochner & Petra E. Todd, 2008. "Earnings Functions And Rates Of Return," Working Papers 200831, Geary Institute, University College Dublin.
  3. Wolfram F. Richter, 2009. "Taxing Education in Ramsey's Tradition," CESifo Working Paper Series 2586, CESifo Group Munich.
  4. 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.
  5. Willis, Robert J & Rosen, Sherwin, 1979. "Education and Self-Selection," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S7-36, October.
  6. Dan Anderberg, 2009. "Optimal Policy and the Risk-Properties of Human Capital Reconsidered," 2009 Meeting Papers 166, Society for Economic Dynamics.
  7. Michael Keane, 2010. "Labor Supply and Taxes: A Survey," Working Paper Series 160, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  8. 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.
  9. Wolfram F. Richter, 2009. "Taxing Education in Ramsey's Tradition," Ruhr Economic Papers 0140, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  10. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, October.
  11. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66, pages 281.
  12. 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.
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