A Microfoundation for Increasing Returns in Human Capital Accumulation and the Under-Participation Trap

Alison Booth and Melvyn Coles

No 543, CEPR Discussion Papers from Centre for Economic Policy Research, Research School of Economics, Australian National University

Abstract: This paper considers educational investment, wages and hours of market work in an imperfectly competitive labour market with heterogeneous workers and home production. It investigates the degree to which there might be both underemployment in the labour market and underinvestment in education. A central insight is that the ex-post participation decision of workers endogeneously generates increasing marginal returns to education. Although equilibrium implies underinvestment in education, optimal policy is not to subsidise education. Instead it is to subsidise labour market participation which we argue might be efficiently targeted as state provided childcare support.

Keywords: Education; home production; hours of work; imperfect competition. (search for similar items in EconPapers)
JEL-codes: H24 J13 J24 J31 J42 (search for similar items in EconPapers)
Date: 2006-12
New Economics Papers: this item is included in nep-edu, nep-hrm, nep-lab and nep-pbe
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https://www.cbe.anu.edu.au/researchpapers/CEPR/DP543.pdf (application/pdf)

Related works:
Journal Article: A microfoundation for increasing returns in human capital accumulation and the under-participation trap (2007)
Working Paper: A MICROFOUNDATION FOR INCREASING RETURNS IN HUMAN CAPITAL ACCUMULATION AND THE UNDER-PARTICIPATION TRAP (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:auu:dpaper:543

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