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Adam Smith

Does education pay?

Measuring the returns

Does it pay to invest in education? Chiara Binelli looks at the difficulty of measuring the private rate of return to investment in education

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Economists agree that there is a strong link between education and economic growth. Education is necessary for individuals to contribute to scientific progress as well as to benefit from it. It is through education that individuals acquire new skills, broaden their horizons and become more productive. In this way education leads to higher labour productivity and therefore higher wages.

Much like spending on physical capital, spending on education is an investment. Money spent on education is an investment in human capital. The more an individual invests in education, the more likely it is that he or she will earn a higher wage. But what are the payoffs to investing in education? And how do economists measure these payoffs?

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Adam Smith

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