Human Capital Investment Strategies in Europe

25 Pages Posted: 28 May 2011

See all articles by Friedhelm Pfeiffer

Friedhelm Pfeiffer

Centre for European Economic Research (ZEW); University of Mannheim - Department of Economics; IZA Institute of Labor Economics

Karsten Reuß

ZEW – Leibniz Centre for European Economic Research

Date Written: 2011

Abstract

The paper analyses alternative investment policies and their consequences for the evolution of human capital in Europe based on a model of age dependent skill formation where the life span depends on investments during childhood. What makes the approach special is the analysis of the returns to education of alternative educational policies targeted at certain ages, countries, or productivity levels for two counterfactual policy regimes, one regime assuming the actual state of diversity and the other a unified Europe. Our results indicate that investments need to be directed more generally to people of younger ages in Europe. If equality is important enough additional investment should specifically be directed to disadvantaged individuals during childhood. Furthermore, high levels of life cycle income inequality and a high skill level increase the optimal amount of investments during younger adulthood. In a unified Europe, the effectiveness of policies to reduce inequality would be higher.

Keywords: Human capital investment, life cycle skill formation, welfare function, Europe

JEL Classification: D87, I12, I21, J13

Suggested Citation

Pfeiffer, Friedhelm and Reuß, Karsten, Human Capital Investment Strategies in Europe (2011). ZEW - Centre for European Economic Research Discussion Paper No. 11-033, Available at SSRN: https://ssrn.com/abstract=1852383 or http://dx.doi.org/10.2139/ssrn.1852383

Friedhelm Pfeiffer (Contact Author)

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
Germany
++49 (0)621/1235-150 (Phone)
++49 (0)621/1235-225 (Fax)

University of Mannheim - Department of Economics

D-68131 Mannheim
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Karsten Reuß

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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