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Returns to Education

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Returns to Education

Given how education is a major investment in most people's lives, the differential between the price of highly and poorly educated labor is often labeled "the return to education."

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In the standard economic model, the accumulation of human capital is seen as an investment decision, where the individual gives up some proportion of income during the period of education and training in return for increased future earnings. Individuals will only undergo additional schooling or training (i.e. Invest in their human capital) if the costs (tuition and training course fees, forgone earnings while at school and reduced wages during the training period) are compensated by sufficiently higher future earnings. In a competitive labour market where wages reflect the marginal product of workers, to be able to command higher earnings, the better-educated or more-trained workers must be sufficiently more productive in employment than their less-skilled counterparts. (Blundell et al. 1999, 2-3)

References

Blundell, Richard, Lorraine Dearden, Costas Meghir, and Barbara Sianesi. "Human capital investment: the returns from education and training to the individual, the firm and the economy." Fiscal studies 20, no. 1 (1999): 1-23.

 

 


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