Microeconomic and Macroeconomic Consideration of Education (Theories of Economics of Education)

This chapter presents the human capital theory which suggests that education and training are investments that make individuals more productive. The concept of human capital is analyzed and human capital is considered as public or private investment. We show how investing in education leads to higher economic growth and better well-being. We also show that people investing in education leads to higher lifetime earnings, better working conditions and reducing the time spend in unemployment. Therefore, we present the signaling model theory which describes behavior when two parties (individuals or organizations) have access to different information. The signaling theory uses education as a signal of the skills and the capacity of each person holds and it supplies an efficient way of allocation of persons to different jobs in labor market. The impact of education on economic growth is also analyzed in this chapter. Education plays an important role in the development process. There is a bidirectional relationship between education and development. Spending on education is considered as an endogenous factor of the new growth model. This chapter: