Abstract
This paper considers educational investment, wages and hours of market work in an imperfectly competitive labour market with heterogeneous workers and home production. It investigates the degree to which there might be both underemployment in the labour market and underinvestment in education. A central insight is that the ex post participation decision of workers endogeneously generates increasing marginal returns to education. Although equilibrium implies underinvestment in education, optimal policy is not to subsidise education. Instead it is to subsidise labour market participation which we argue might be efficiently targeted as state-provided childcare support.
Original language | English (US) |
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Pages (from-to) | 1661-1681 |
Number of pages | 21 |
Journal | European Economic Review |
Volume | 51 |
Issue number | 7 |
DOIs | |
State | Published - Oct 2007 |
Keywords
- Education
- Home production
- Hours of work
- Imperfect competition
ASJC Scopus subject areas
- Finance
- Economics and Econometrics