Increasing Returns to Education: Theory and Evidence

Alison Lee Booth (), Melvyn Glyn Coles and Xiaodong Gong ()

No 522, CEPR Discussion Papers from Centre for Economic Policy Research, Research School of Social Sciences, Australian National University

Abstract: We model educational investment and labor supply in a competitive economy with home and market production. Heterogeneous workers are assumed to have different productivities both at home and in the workplace. We show that there are increasing returns to education at the labor market participation margin, and that these depend directly on the elasticity of labor supply with respect to wages. Thus the increasing returns to education problem will be most relevant for women or other types with large enough home productivity. We estimate a three equation recursive model of working hours, wages and years of schooling, and find empirical support for the main predictions of the model.

Keywords: returns to education; home production; labor supply (search for similar items in EconPapers)
JEL-codes: H24 J13 J24 J31 J42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-edu and nep-pbe
Date: 2006-05
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Working Paper: Increasing Returns to Education: Theory and Evidence (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:auu:dpaper:522

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