Human Capital & the Mincer Equation
Education as investment: how schooling and experience price into earnings.
The Human Capital & the Mincer Equation model, in writing
Definition
Skills as capital: education and experience are investments that raise productivity and earnings, summarized empirically by the Mincer equation.
ln(wage) = β₀ + β₁·schooling + β₂·experience + β₃·experience² ; β₁ ≈ 8–12% per year
The intuition
A degree costs tuition plus forgone wages and pays a lifetime earnings premium, an investment decision with a computable return, and one of the most stable regularities in economics. The rival reading (signaling) says school reveals ability rather than building it.
Exam tip
The experience-squared term is negative, earnings profiles are concave; forgetting it is the classic Mincer error.
Related models in Labor Economics