Education: Consumption or Production

Abstract

Human capitalists often find themselves confronted with the charge that the human capital framework, although consistent with empirical results, does not appropriately capture the true direction of causality.In particular, Spence (1972) has argued that education may simply provide a signal to employers of the applicant's ability and may not actually increase the individual's productivity) Although the signalling hypothesis has implications with respect to the social returns to education which differ from those of the traditional human capital story, the implications for the individual are essentially the same.Regardless of whether schooling is a screen or a truly productive asset, it is still traditional for the individual investor to acquire formal schooling up to the point where the present value of additional education is equal to the cost of its acquisition.There is, however, another motivation for the connection between schooling and wealth which has implications at the level of the individual different from those traditionally ascribed to human capital.Specifically, it can be claimed that education is simply a normal consumption good and that like all other normal goods, an increase in wealth will produce an increase in the amount of schooling purchased.Increased incomes are associated with higher schooling attainment as the simple result of an income effect.Bowles (1972), for example, finds that 52% of the variation in levels of schooling can be explained by family background variables.He argues that the exclusion of these variables from earnings functions causes an upward bias in the estimated returns to schooling.2If this is so, schooling increases an individual's wealth only by the consumption value of the good, since it is a non-saleable

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 110 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.