A MICROFOUNDATION FOR INCREASING RETURNS IN HUMAN CAPITAL ACCUMULATION AND THE UNDER-PARTICIPATION TRAP

Alison Lee Booth () and Melvyn Glyn Coles

CAMA Working Papers from Australian National University, Centre for Applied Macroeconomic Analysis

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 endogenously 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.

JEL-codes: H24 J13 J24 J31 J42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-edu, nep-hrm and nep-pbe
Date: 2007-02
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http://cama.anu.edu.au/Working%20Papers/Papers/2007/Booth_Coles_72007.pdf (application/pdf)

Related works:
Working Paper: A Microfoundation for Increasing Returns in Human Capital Accumulation and the Under-Participation Trap (2006)
Journal Article: A microfoundation for increasing returns in human capital accumulation and the under-participation trap (2007)
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