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A Human Capital Model of the Effects of Abilities and Family Background on Optimal Schooling LevelsTracy ReganUniversity of Miami - School of Business Administration - Department of Economics Galen BurghardtUniversity of Chicago - Booth School of Business Ronald L. OaxacaUniversity of Arizona - Department of Economics; Institute for the Study of Labor (IZA) January 2006 IZA Discussion Paper No. 1927 Abstract: This paper develops a theoretical model of optimal schooling levels where ability and family background are the central explanatory variables. We derive schooling demand and supply functions based on individual wealth maximization. Using NLSY79 data we stratify our sample into one-year FTE work experience cohorts for 1985-1989. Mincer's (1974) overtaking cohort (the years of work experience at which individuals' observed earnings approximately equal what they would have been based on schooling and ability alone) corresponds to 13 FTE years of work experience yielding on average a rate of return of 9.6 percent and an average (optimal) 11.4 years of schooling.
Number of Pages in PDF File: 45 Keywords: human capital, ability, family background, schooling, earnings JEL Classification: J24, J31, J22 working papers seriesDate posted: February 20, 2006Suggested CitationContact Information
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