Education as investment: how schooling and experience price into earnings.
Warming up the engine…
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
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.
The experience-squared term is negative, earnings profiles are concave; forgetting it is the classic Mincer error.
Now prove you have it
Move the curve to where you think it lands, and get told exactly which part you got right.
Real-world scenarios on this model
Equilibrium at S 5.3, W 30.
Equilibrium: S* = 5.3, W* = 30.0
Current equations
Education as an investment. The curve shows earnings compounding with each year of schooling; the flat line is the wage you could earn right now without it. Where the curve crosses the line is the break-even point where studying starts to pay.