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A Review of Human Capital Theory: Microeconomics

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  • Kai-Joseph Fleischhauer

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Abstract

With the beginning of the new millennium it has become more and more apparent that education and human capital constitute a key element of modern economies. Despite the important role of human capital in modern societies, there are still many unknowns about the process of educational production as well as individual and collective decisions concerning how much and what kind of education to obtain. This literature review aims at providing a better understanding of the process of human capital formation and educational attainment. Although human capital plays an important role in both microeconomics and macroeconomics, we focus on the former branch of literature in order to analyze the individual incentives to acquire skills. This review is divided into six parts each of them representing an important stream of human capital literature. First, we introduce the basic concept of human capital that models individuals as investing in skills in response to the expected returns to education. After this, we investigate the different implications of investments in general and specific human capital and then provide an overview of various empirical studies measuring the rate of return to education. Because educational attainment may also be affected by other factors such as school characteristics or family background, we review the literature on educational production functions and discuss the significance of potential inputs into the process of educational production. Subsequently, we refer to models of human capital accumulation over the life-cycle that manage to replicate the empirical life-cycle patterns with respect to the age-earnings profile of individuals. Finally, we analyze the effects of taxation and education subsidies on the formation of human capital.

Suggested Citation

  • Kai-Joseph Fleischhauer, 2007. "A Review of Human Capital Theory: Microeconomics," University of St. Gallen Department of Economics working paper series 2007 2007-01, Department of Economics, University of St. Gallen.
  • Handle: RePEc:usg:dp2007:2007-01
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    File URL: http://ux-tauri.unisg.ch/RePEc/usg/dp2007/DP01_Fl.pdf
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    References listed on IDEAS

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    1. Winter-Ebmer, Rudolf & Zweimuller, Josef, 1992. "Occupational segregation and career advancement," Economics Letters, Elsevier, vol. 39(2), pages 229-234, June.
    2. A. Lans Bovenberg & Bas Jacobs, 2005. "Redistribution and Education Subsidies are Siamese Twins," Tinbergen Institute Discussion Papers 05-036/3, Tinbergen Institute.
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    Cited by:

    1. Mirko Felchner, 2015. "Einkommensdynamik bei Selbständigen als Freie Berufe und abhängig Beschäftigte Eine dynamische Paneldatenschätzung mit Daten des Sozio-oekonomischen Panels," FFB-Discussionpaper 101, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)), LEUPHANA University Lüneburg.
    2. repec:wsi:jecxxx:v:24:y:2016:i:04:n:s0218495816500163 is not listed on IDEAS

    More about this item

    Keywords

    Human Capital; Return to Education; Education Production Function; Life-Cycle of Earnings; Education Subsidies;

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I20 - Health, Education, and Welfare - - Education - - - General
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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