教育回报估计.pptVIP

The Returns to Education Background Acquiring education is an investment in the sense that one givers up something now (you could be working in McDonalds and not paying fees) in the hope of getting more back in the future. For that, reason education is often described as ‘human capital’, the title of a famous book by Gary Becker. like all investments, how the future gain compares to the current sacrifice is critical in determining whether education is a good investment or not. The Individual Decision to Acquire education Assume earnings if have s years of (post-compulsory) schooling is W(s) Assume only cost of education is forgone earnings – no direct cost Assume everyone lives for ever PDV of s years of education is: The education decision (cont) Taking logs this can be written as: The first order-condition can be written as: i.e. acquire education up to the point where the increase in log earnings is equal to the rate at which future earnings are discounted Equilibrium Suppose all individuals identical Suppose require different levels of education in equilibrium Then must be the case that Is equalized for different levels of s Think of including years of education on RHS of earnings function – coefficient on s is measure of r – rate of return to education Estimates of rate of return to education For US a typical OLS estimate from an earnings function is about 8% Other countries are a bit different Suggests education a very good investment – few other investments offer an 8% real return. Estimates of rate of return to education for other countriesTrostel, Walker, Woolley, Labour Economics 2002) A puzzle If rate of return to education is so high, why aren’t more people acquiring education Possible answers: Liquidity constraints Bias in OLS estimate so rate of return not really that high Heterogeneity in the returns to education Liquidity Constraints In perfect capital market r should be rate of interest But if imperfect capital market may be much higher. W