The dominant model of the demand for education is based on human capital theory. The central idea is that undertaking education is investment in the acquisition of skills and knowledge which will increase earnings, or provide long-term benefits such as an appreciation of literature (sometimes referred to as cultural capital). An increase in human capital can follow technological progress as knowledgeable employees are in demand due to the need for their skills, whether it be in understanding the production process or in operating machines. Studies from 1958 attempted to calculate the returns from additional schooling (the percent increase in income acquired through an additional year of schooling). Later results attempted to allow for different returns across persons or by level of education.
Statistics have shown that countries with high enrollment/graduation rates have grown faster than countries without. The United States has been the world leader in educational advances, beginning with the high school movement (1910–1950).
Estimating the return to schooling is always an important topic in the economic fields around the world. Studies conducted by different countries during different time periods have all support that education years is positively related to an individual’s earnings. People always face the question whether to work or to continue to higher education. If they choose to work, they may be less competitive and get a lower wage than people with higher education. If they choose to continue to study, they may gain more skills and earn more money in the future. However, at the same time, they must consider the tuition fee as well as the earnings they give up when studying in the school. According to human capital theory, education can be regarded as a kind of investment that can increase individual’s earnings in the future. Individuals will invest on human capital until the marginal benefit of their investment equals to the marginal cost. The cost of education can be easily calculated by the
To make a wise decision, everyone might like to find out the effect of education on the wage, more specifically, what will happen to individual’s wage if he or she has one more year of education?
Previous studies have used various methods and factors to explore the return to schooling. Dougherty (2005) investigates some possible determinants to explain the impact of schooling on income is greater for females than for males using data from the National Longitudinal Survey of Youth 1979. The author performs a conventional regression of the logarithm using 6,111 observations from the National Longitudinal Survey of Youth 1979. He finds that education had two effects on female’s income. On the one hand, education can improve female’s techniques and productivity. On the other hand, education can decrease the income differences between male and female.
Heckman, Lochner and Todd (2008) find that high school graduated people turn to have higher economic returns than those college graduated people; however, the returns to both of the two groups increase over time. They build a general