Abstract:

While contributing to processes of economic growth and development, education fulfills its economic function. On the other side, social function is visible in indirect contribution of education to these processes. Namely, all that we call positive externalities of education, such as reduced expenditures on health and social care systems and reduced social expenditures, represent an indirect contribution of education to economic development. As the economy moves towards a knowledge-based economy, the indirect effects of education on society as a whole are more visible and significant. Investing in education can be seen as an individual as well as a social decision. The individual aspect is reflected in making an individual decision to continue education (acquiring higher levels of education), while social decision is reflected in defining the policy of investing in education and its priorities. Quantifying the impact of education on the level of earnings in the labor market remains a major challenge for researchers today, largely due to the complexity of the effects of education on the individual but also on society. Scientific studies on estimating returns on investment in education accompany the development of Human Capital Theory. Today, there is a significant body of empirical research in the area of returns on investment in education, however, with different spatial and temporal spans, and a different methodology used to estimate these returns. The use of different methodologies in estimating returns on investment in education has led to contradictory conclusions regarding the level of estimated returns. However, dominant methodology for estimation is based on the Mincer equation, noting that there are different methods in scientific literature for estimating parameters.

The main aim of this paper is to analyze basic theoretical assumptions and methodological restrictions of the Mincer equation, while also providing a systematic overview of key contemporary studies in this field. The main findings of this paper lie in emphasizing the importance of the Mincer equation in estimating returns on investment in education and Mincer's overall contribution to this field of economic science. This paper also provides an analysis of methodological aspects behind the Mincer equation, with an in-debth analysis of advantages and disadvantages of using different estimation methods within the Mincer equation.

Keywords:

Mincer, education, earnings, human capital.