ECON 426 Lecture Notes - Compulsory Education, Lochner V. New York, Literature Review

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copperalpaca520

9 Nov 2011

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Title: the compelling effects of compulsory schooling: evidence from canada. Main hypotheses/questions: what are the effects and benefits of compulsory schooling in canada, to provide an alternative framework to evaluate the merits of compulsory schooling. Main results: allowing for exemptions for minimum school leaving age decreases grade, effects on income and grade attainment occur very soon after increases in school attainment leaving age, effects of returns to increasing compulsory schooling increases over time. In terms of socioeconomic outcomes, increases in compulsory schooling: increases reports of full-time occupations and job searching, increases probability of working in clerical occupations, decreases probability of falling below statistics canada"s low income. Cut-off: an additional year of compulsory schooling will have an increase in annual income by 9-15%, and possess better skills, such as bilingualism and better work ethic. These changes are nearly uniform across cohorts and geographic regions: the opportunity cost of forgoing additional education by dropping out is very high because of these benefits.

Related Questions

Problem #1: Estimating the Marginal Return to Schooling Suppose Carl's wage-schooling locus is given by the following schedule: Years of Schooling Real annual earnings 8 $10,000 9 $12,800 10 $16,000 11 $18,500 12 $20,350 13 $22,000 14 $23,100 15 $23,900 16 $24,000 Suppose that the only cost of schooling is the opportunity cost of not working and earning money. Also, assume that Carl's life is infinitely long (this is a good approximation when the time horizon is long).

1. Derive the marginal rate of return schedule. (This is, calculate Carl's internal rate of return to each additional year of schooling).

2. When will Carl quit school if his discount rate is 4 percent? Why?

3. What will Carl's optimal schooling choice be if his discount rate is 12 percent? Why?

4. Suppose the government imposes an income tax of 20 percent. What is the effect of this income tax on Carl's educational attainment? Why?

Problem #2: Schooling Nancy is deciding on an optimal schooling strategy. She currently has zero years of schooling and knows she will live for 60 more years. In any given year she can either choose to add to her current level of schooling or she can work. If she decides to work, she will have an annual salary of S, where S is her current level of schooling (measured in years of schooling). If she decides to go to school, she will not have any income during that year, but her schooling 1 level will increase by 1 year. Schooling is otherwise free. Nancy's discount rate is r = 0. Nancy's objective is to maximize lifetime income.

1. What is Nancy's lifetime income as a function of her level of schooling, S?

2. What is Nancy's lifetime income if she gets no schooling? What is it if she goes to school for all 60 remaining years of her life? In words, describe the âcostâ to Nancy of choosing to attend school for 1 additional year.

3. Determine Nancy's optimal schooling level (hint: you can do this with calculus or by graphing her lifetime income and finding the level of schooling that maximizes that income).

4. During which part of Nancy's remaining life will she get her schooling?

orchidrat294

There are two workers in the economy, A, and B; A can go to school and B cannot. Education increases future income according to the following function: I(e)= 50(e)/(1+e). Total cost per year of schooling equals 2, and thus: mc(e)=2

a. Derive the marginal income function.
b. What is the optimal schooling level for worker A?

Suppose that educated workers also increase the productivity of a non-educated one, according to the following function: B(e)=e (i.e. the benefit for the non-educated worker for each year of schooling studied by the educated worker is 1).

c. What is the optimal schooling level for worker A from the social point of view?
d. How can you achieve it?
e. Explain the difference between your answers to b. and c.

cerisemoose82

One often-used definition of the term opportunity cost is that it is something that is given up when a choice is made. An example would be the money from working full-time given up by going to school. I suggest using the definition that opportunity cost is in terms of the foregone benefits of the next best alternative that could have been chosen. If the choice is for going to school instead of working full-time, then the opportunity cost would be all the benefits you would enjoy from working full-time in addition to the income you would earn. Using examples from your experiences and what you know, in what manners does the suggested change in definitions offer advantages in evaluating potential outcomes of choices either you or society have to make? How does this second opportunity cost definition help you make better decisions?

ECON 426 Lecture Notes - Compulsory Education, Lochner V. New York, Literature Review

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