Returns to Education

Abstract

This study gives an account of theory, models and measurements of returns to higher education, seen as the results of economically rational investment decisions. The focus is on returns in the form of increased wages and salaries. These returns vary considerably between different countries and tend to be considerably larger in the USA than in western Europe. One of the reasons for these differences in returns may be the differences in systems of funding of higher education. It is claimed that practically all studies of returns to investments in higher education disregard the benefits from reductions in consumer transaction costs and the role played by education as an important input in household production functions. Econometric studies, reported in the paper, accordingly indicate that the level of education has a considerable impact on the structure of household consumption expenditures.