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

45 Pages Posted: 20 Feb 2006

See all articles by Tracy Regan

Tracy Regan

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

Galen Burghardt

University of Chicago - Booth School of Business

Ronald L. Oaxaca

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

Date Written: January 2006

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.

Keywords: human capital, ability, family background, schooling, earnings

JEL Classification: J24, J31, J22

Suggested Citation

Regan, Tracy and Burghardt, Galen and Oaxaca, Ronald L., A Human Capital Model of the Effects of Abilities and Family Background on Optimal Schooling Levels (January 2006). IZA Discussion Paper No. 1927. Available at SSRN: https://ssrn.com/abstract=878335

Tracy Regan

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

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

Galen Burghardt

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Ronald L. Oaxaca (Contact Author)

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

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