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

Wolfram Richter

No 7280, IZA Discussion Papers from Institute of Labor Economics (IZA)

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.

Keywords: Mincer equation; earnings determination; maximizing utility vs. earnings; power law of learning; second-best taxation in Ramsey's tradition; education elasticity rule (search for similar items in EconPapers)
JEL-codes: H21 I28 J24 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2013-03
New Economics Papers: this item is included in nep-edu, nep-lab and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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