SummaryCh09 - S u m m ar y The individual decision to...

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Summary The individual decision to acquire education can be treated like any investment.The human capital investment decision is based on a comparison of the present value of the net benefits of obtaining varying levels of education.The optimal choice will maximize the present value of net benefits, accounting for the direct costs of schooling,as well as the opportunity cost of the time spent in school. Because it is costly for people to acquire educa- tion, workers will need to be compensated in the labour market by higher wages in order to justify the investment in additional human capital.As long as firms are willing to pay these higher wages (because higher-educated workers are more pro- ductive), there will be a positive return to educa- tion. It is also possible for wages to be positively related to education even if education does not improve individual productivity.This can occur when educa- tion serves as a signal for underlying ability, and
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