When is an additional year of education a good investment? The quotation from Adam Smith provides the answer, “whenever the increased benefits both pay back the initial costs and yield a rate of return at least as high as alternative investments of one’s time and money”. A major contribution of the human capital theory developed by Becker and others is to take this insight of Adam Smith and show how it can be used to measure the private and social rate of return not only to education but also to numerous other labor market activities.
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