This paper is concerned with the returns to education. In particular we focus on education as a private decision to invest in “human capital” and we explore the “internal” rate of return to that private investment. Evidence that the private returns are disproportionately high relative to other investments with similar degrees of risk would suggest that there is some “market failure” that prevents individuals implementing their privately optimal plans. This may then provide a role for intervention. While the literature is replete with studies that estimate this rate of return using regression methods, where the estimated return is obtained as the coefficient on a years of education variable in a log wage equation that contains controls for work experience and other individual characteristics, the issue is surrounded with difficulties. (Author/publisher)
Samenvatting