Increasing Returns to Education: Theory and Evidence

47 Pages Posted: 22 May 2008

See all articles by Alison L. Booth

Alison L. Booth

Australian National University (ANU) - Research School of Social Sciences (RSSS); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Melvyn G. Coles

University of Essex - Department of Economics; Autonomous University of Barcelona; IZA Institute of Labor Economics

Xiaodong Gong

Australian National University (ANU) - School of Economics; IZA Institute of Labor Economics

Date Written: April 2007

Abstract

We model educational investment and labour 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. Following Rosen (1983), we show that there are private increasing returns to education at the labour market participation margin. We show that these depend directly on the elasticity of labour 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: home production, labour supply, returns to education

JEL Classification: J22, J24, J31

Suggested Citation

Booth, Alison L. and Coles, Melvyn G. and Gong, Xiaodong, Increasing Returns to Education: Theory and Evidence (April 2007). CEPR Discussion Paper No. DP6266, Available at SSRN: https://ssrn.com/abstract=1135504

Alison L. Booth (Contact Author)

Australian National University (ANU) - Research School of Social Sciences (RSSS) ( email )

Canberra, Australian Capital Territory 0200
Australia
+61 2 6125 3285 (Phone)
+61 2 6125 0182 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

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

Melvyn G. Coles

University of Essex - Department of Economics ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
+44 1206 873333 (Phone)
+44 1206 872724 (Fax)

Autonomous University of Barcelona

Plaça Cívica
Cerdañola del Valles
Barcelona, Barcelona 08193
SPAIN

IZA Institute of Labor Economics

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

Xiaodong Gong

Australian National University (ANU) - School of Economics ( email )

Coombs Building 9
Canberra, Australian Capital Territory 0200
Australia
61 2 6125 4235 (Phone)
61 2 6125 0182 (Fax)

HOME PAGE: http://econrsss.anu.edu.au/Staff/gong/contact_xg.htm

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany
049 228/ 3894 527 (Phone)
049 228/ 3894 510 (Fax)

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