Education and Work

Abstract

This paper examines the relationship between the incentives to work and to invest in human capital through education in a lifecycle optimizing model. These incentives are shown to be mutually reinforcing in a simple stylized model. This theoretical prediction is investigated empirically using three large micro datasets covering a broad range of countries. As one might expect, education and work are strongly positively correlated. This correlation has important implications for models of fiscal policy and economic growth. It also has important implications for the estimation of labor supply and the rate of return to education.Education, labor supply, lifecycle,

Tax policy and returns to education

“…There is a large literature which analyses optimal education choice and dynamic labour supply within a lifecycle framework (see Trostel and Walker (2006) and the references therein). As checking second order conditions is complicated in such frameworks, the typical approach is to assume an interior solution and characterise a solution to the first order conditions.…”

Education Mismatch, Human Capital and Labour Status of Young People Across European Union Countries

“…However, it is not clear yet if this aggregate mismatch negatively affects all young people in the same way or, instead, heterogeneous and counterbalancing effects emerge as a result of the different education profiles of individuals. There is, in fact, theoretical and empirical evidence reporting a positive effect of human capital accumulation (i.e., increasing years of education) 1 in reducing unemployment or inactivity risk, albeit this literature is not largely developed (Spence, 1973;Mincer, 1991;Trostel and Walker, 2006). Consequently, if the aggregate skill mismatch means a lack of higher educated young people on the supply side of the labour market, the higher the mismatch, the more favored the scanty better educated youngsters should be.…”

“…Eventually, we also find that a relative probability of being unemployed or staying in education is remarkably higher for two years after the beginning of the crisis, in 2010. However, the coefficient of our main interest, related to the years of education, may be subject to a bias due to endogeneity (Trostel and Walker, 2006). As discussed in section 3, we implemented the 2SRI method to tackle this problem and present the respective estimation results in table 3.…”

“…Two main problems undermine these specifications, the endogeneity of education with respect to labour status (Riddell and Song, 2011;Trostel and Walker, 2006) and the multilevel nature of the data that we use for the econometric analysis (Bryan and Jenkins, 2013).…”

“…When hired, college graduates demonstrate better ability to acquire firm-specific knowledge during on-the-job training, than less educated workers; for this reason the former experience less job turnover and unemployment (Mincer, 1991). Trostel and Walker (2006) conclude on a set of both developed and emerging countries that in the first part of the life-cycle individual decision to invest in own's human capital improves both intensive and extensive margins of employment, namely it increases the hours worked and reduces the probability of being unemployed, respectively. In particular, the study: i) clearly shows that the choice to invest in human capital is endogenous to the labour market status (employee, unemployed, etc.…”