A Human Capital Model of the Effects of Ability and Family Background on Optimal Schooling Levels

18 Pages Posted: 22 Oct 2007

See all articles by Tracy Regan

Tracy Regan

University of Miami - School of Business Administration - Department of Economics

Ronald L. Oaxaca

University of Arizona - Department of Economics; IZA Institute of Labor Economics

Galen Burghardt

University of Chicago - Booth School of Business

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 the National Longitudinal Survey of Youth 1979 data, we stratify our sample into 1-yr full-time equivalent (FTE) work experience cohorts for 1985-1989. The estimated Mincerian 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 experience, yielding on average a rate of return of 10.3% and an average (optimal) 11.4 yr of schooling.

JEL Classification: J24, J31, J22

Suggested Citation

Regan, Tracy and Oaxaca, Ronald L. and Burghardt, Galen, A Human Capital Model of the Effects of Ability and Family Background on Optimal Schooling Levels. Economic Inquiry, Vol. 45, Issue 4, pp. 721-738, October 2007. Available at SSRN: https://ssrn.com/abstract=1022734 or http://dx.doi.org/10.1111/j.1465-7295.2007.00058.x

Tracy Regan

University of Miami - School of Business Administration - Department of Economics ( email )

P.O. Box 248126
Coral Gables, FL 33124-6550
United States

Ronald L. Oaxaca

University of Arizona - Department of Economics ( email )

McClelland Hall
Tucson, AZ 85721-0108
United States
520-621-4135 (Phone)
520-621-8450 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Galen Burghardt (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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