Mincer Equation, Power Law of Learning, and Efficient Education Policy

30 Pages Posted: 23 Mar 2013

See all articles by Wolfram F. Richter

Wolfram F. Richter

TU Dortmund University; CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)

Abstract

The basis for the empirical research on earnings determination is the Mincer equation. Individuals are assumed to make schooling decisions by maximizing earnings. Leisure costs of schooling and labour supply are neglected which has some empirically implausible implications. This paper shows a way of deriving a Mincer-type earnings function from the more standard assumption of utility maximization. The implications are less questionable. The approach allows one to analyse the efficiency of education policy in Ramsey's tradition. Distortive wage taxation is shown to provide reason for subsidizing education in effective terms. Second-best policy is confronted with empirical evidence on OECD countries.

Keywords: Mincer equation, earnings determination, maximizing utility vs. earnings, power law of learning, second-best taxation in Ramsey's tradition, education elasticity rule

JEL Classification: J24, H21, I28

Suggested Citation

Richter, Wolfram F., Mincer Equation, Power Law of Learning, and Efficient Education Policy. IZA Discussion Paper No. 7280. Available at SSRN: https://ssrn.com/abstract=2238313

Wolfram F. Richter (Contact Author)

TU Dortmund University ( email )

Vogelpothsweg 87
D-44221 Dortmund
Germany
+49-231-755-3146 (Phone)
+49-231-755-5404 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Institute for the Study of Labor (IZA)

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

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