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8 - Underinvestment in training?
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- By Randolph Sloof, Department of Economics University of Amsterdam; Associate Professor Economics of Organization and Personnel, Joep Sonnemans, Professor of Behavioural Economics University of Amsterdam, Hessel Oosterbeek, Professor of Economics of Education University of Amsterdam
- Edited by Joop Hartog, Universiteit van Amsterdam, Henriëtte Maassen van den Brink, Universiteit van Amsterdam
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- Book:
- Human Capital
- Published online:
- 22 September 2009
- Print publication:
- 28 June 2007, pp 113-133
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Summary
Introduction
When a newly hired employee enters a firm there are typically many skills he has to acquire before becoming fully productive. A blue-collar worker, for example, needs to get acquainted with the machines and tools with which he is going to work, while white-collar workers usually have to become familiar with, for example, the particular software package in place. Many of these skills are highly firm-specific, i.e. they are of much lower value in other firms. Investing in firm-specific skills is therefore a risky enterprise for the worker. Although the employer may promise to reward the worker for skills acquisition, for instance through a promotion or a wage increase, after the investment has been made she has an incentive to renege on this promise in order to save on labour costs. Reneging is possible for the firm, because the worker cannot collect the return to his newly obtained skills elsewhere (and because the labour contract is incomplete: see below). Of course, workers will anticipate this opportunistic behaviour by the firm and are unlikely to invest in the first place. Likewise, the firm has not much of an incentive to make the investment. Once the worker has obtained the skills, he will bargain for a wage increase or a promotion. The firm is in a weak bargaining position, because the specific skills required ensure that the worker cannot immediately be replaced by another one.
1 - What should you know about the private returns to education?
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- By Joop Hartog, Professor of Micro-economics University of Amsterdam, Hessel Oosterbeek, Professor of Economics of Education University of Amsterdam
- Edited by Joop Hartog, Universiteit van Amsterdam, Henriëtte Maassen van den Brink, Universiteit van Amsterdam
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- Book:
- Human Capital
- Published online:
- 22 September 2009
- Print publication:
- 28 June 2007, pp 7-20
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Summary
Basic schooling model
In this chapter, we focus on schooling as an investment in human capital. We present the core model in its most basic specification and derive implications for interpreting wage differentials by education as reflecting returns on the schooling investment. We briefly survey international evidence on estimated private rates of return and summarize our own contributions to that literature
The basic human capital model of schooling envisages two options: (1) go to school for s years and earn an income Ys every year after leaving school, or (2) go to work right away and earn annual income Y0 (see figure 1.1). This makes the choice for schooling an investment problem. While in school, the student has forgone earnings of Y0 for every year in school and direct outlays for tuition, books, etc. of K per year. After leaving school the individual has benefits: in every working year, earnings are Ys rather than Y0. The gap in annual earnings is the dividend flowing on his investments.
The internal rate of return is the discount rate that equates the present values of the two lifetime earnings flows. But as the above suggests, we can also take it as the dividend rate Ys − Y0 relative to the investment cost, composed of forgone earnings Y0 and direct outlays K for every year in school.
10 - Using (quasi-)experiments to evaluate education interventions
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- By Hessel Oosterbeek, Professor of Economics of Education University of Amsterdam
- Edited by Joop Hartog, Universiteit van Amsterdam, Henriëtte Maassen van den Brink, Universiteit van Amsterdam
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- Book:
- Human Capital
- Published online:
- 22 September 2009
- Print publication:
- 28 June 2007, pp 155-169
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Summary
‘… Can you name the two forces underlying all life in this world?’
‘Uh – wealth and poverty?’
‘Not wealth and poverty.’
‘Good and evil?’
‘No – cause and effect….’
From Vernon God Little by D. B. C. Pierre (2003)Introduction
The key question in any evaluation study is how to assess what would have happened in the absence of the policy that is investigated. Simply comparing the average outcomes for participants and non-participants will in general provide an incorrect estimate of the policy's effect. Correcting the estimates for differences in observed characteristics, as is done in a regression framework or with matching methods, may solve the problem partially but not entirely.
Consider the following three examples. First, when we are interested in the effect of class size reduction on pupils’ achievement, we might want to compare the average achievement of pupils who attend small classes with the average achievement of pupils who attend large classes. But if we do that in the Dutch context we are basically comparing pupils from disadvantaged backgrounds (who are typically placed in small classes to compensate for their disadvantage) with non-disadvantaged pupils. We therefore need to control for social background. But even if we do so, some parents may want to have their children placed in small classes while others do not care.
8 - Age, wages and education in The Netherlands
- Edited by Paul Johnson, London School of Economics and Political Science, Klaus F. Zimmermann, Ludwig-Maximilians-Universität Munchen
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- Book:
- Labour Markets in an Ageing Europe
- Published online:
- 05 November 2011
- Print publication:
- 13 May 1993, pp 182-215
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Summary
Introduction
Throughout the postwar period, the age composition of the Dutch labour force has shown large changes. And according to demographic predictions, the driving force behind these developments has not yet come to an end. In this paper we study some consequences by looking at historical developments, and we use our findings for some speculation about future developments. Throughout the paper, we will distinguish labour by level of education, since this is one of the most obvious sources of heterogeneity. We will study the changes in the educational composition of the labour force and we discuss possible explanations. We will consider labour force participation behaviour, as it is a vital step between population and labour force. And we will analyse the consequences for the structure of wages of a changing composition of the labour force, by age and education (including the impact of variations in cohort size). This latter analysis will be conducted against the background of generally claimed rigidity in the Dutch wage structure, originating in institutionalization of wage determination and supported by the welfare state.
In the next section, we characterize the nature and history of the Dutch labour market. In section 3, we document changes in labour force composition; in section 4 we discuss causes and consequences, based on theory and available research. In section 5, we present our own contribution to empirical analysis, focussing on Mincerian earnings equations estimated for 14 cross-sections between 1962 and 1989.
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