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Explain how schooling and earnings are related and how a Mincer function estimates the rate of return to schooling. What problem - Essay Example

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Name Tutor Institution Course Date Schooling and earning theories The statistics provided every year by the United States Bureau for Census has been able to show that there is a very strong relationship between education and earning. In the year 2008, those workers who had any bachelor’s degree in the US earned sixty-five per cent more compared to workers who had only a diploma from high school (Jacob, 2008)…
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Explain how schooling and earnings are related and how a Mincer function estimates the rate of return to schooling. What problem
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Extract of sample "Explain how schooling and earnings are related and how a Mincer function estimates the rate of return to schooling. What problem"

Download file to see previous pages This premium has increased since the 1970s. It means that the employers in different sectors value workers who are more educated (Steve, 2006). The set of abilities and skills that different individuals bring to the market is called human capital. Schooling is an investment in the human capital. This is so because it delivers skills that are specialized and boosts the productivity of workers. As a result, levels of education that are higher generally lead to an increased power of earning (Boniface, 1999). Different researches have been able to show that each year one spends in school improves their annual earning by ten per cent (Melvin, 1991). However, one should way the options of attending work to furthering their education. This choice is called the “opportunity cost” or the true price of education. A person who seeks to maximize his future earnings should choose remaining in school to learn more if only the long-run payout in an additional year in school is able to surpass the opportunity cost (Vade, 2012). The impact caused by schooling on the different levels of earning carries a significant weight for the decision making of persons as well as the policy makers. With the theories of education and earning in the United Kingdom and the averaged ten per cent return rate annually, schooling represents among the finest investment any given government can make for the period of financial limitations and scarce resources. Through subsidizing education, the policy creators are able to ensure that education is more affordable and more accessible. It is argued that investment in the sector of education is a sure way for good result of an economy and the standard of living for the people who have low incomes. (Ruben, 1999). The Wage-schooling locus is a theory based on the total amount of earnings that different firms are ready to pay their employees for a given level of schooling. According to the theory, different workers with different educational level have different amount of salaries (Helen, 2005). The more one is educated the more his or her salary per annum. There are certain properties that a wage-schooling locus has. The locus slopes upwards. The upward sloping curve shows that more education is needed in the market and an increase in the level of education has an increasing effect on the salaries of employees (Jackson, 1997). This curve indicates an earnings increase associated with one year additional of education. The wage-schooling locus curve is concave. This indicates that there is a diminishing rate of return to the accumulation of human capital. Each additional year of education yields less knowledge increase and a lower additional earning compared to previous years (Else, 1999). A year increase in education leads to an increase in salaries but at a reducing rate. The wage-schooling locus indicates the salary which a worker would get after completing a certain level of education (Reuben, 1990). If this worker were a high school graduate, he or she would earn $ 21,000 in a year. If the worker advances his or her education for one year in college, his or her returns will increase to $ 24,000, according to this graph. Dollars 24,000 21,000 12 13 14 Years of schooling Mincer function Mincer was able to come up with an earning natural logarithm model. This model is a function of the education years and the years of the ...Download file to see next pagesRead More
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