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Lifetime Earnings, Discount Rate, Ability and the Demand for Post–compulsory Education in Men in England and Wales
Author(s) -
Johnson Daniel
Publication year - 2002
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/1467-8586.00151
Subject(s) - earnings , economics , matching (statistics) , human capital , investment (military) , educational attainment , demographic economics , labour economics , econometrics , finance , statistics , mathematics , politics , political science , law , economic growth
Human capital theory suggests educational investments are made based on expected returns over the lifetime. Most other work in this field, particularly using British data, is based on demand models estimated in reduced form, with no earnings measures, or crudely constructed earnings measures, based on one or two earnings observations per individual. We present a structural model of demand for educational investment which includes estimates of earnings paths for educational options as determinants of educational choice. This provides us with directly interpretable parameter estimates. The discount rate is also determined within our demand model. Ability controlled earnings profiles are estimated by matching individuals from the General Household Survey to individuals in similar occupations from the National Child Development Survey (NCDS). Our results show that expected earnings profiles vary according to observed ability and educational choice. Results from the demand model show that expected lifetime earnings have a significant impact on educational choice. Other socio–demographic factors, particularly social class, also exhibit significant influences on the education decision. We estimate the discount rate to be lower than reported in other studies.