Real option,human capital investment returns and higher educational policy |
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| Institution: | 1. Department of Marketing and Logistics Management, Chung Chou Institute of Technology, Changhua 51003, Taiwan;2. Department of Applied Economics, National Chung Hsing University, Taichung 40227, Taiwan;3. Bachelor''s Degree Program of Hotel Management, Tainan University of Technology, Tainan 71002, Taiwan;1. Department of Statistics, University of Ibadan, Ibadan, Nigeria;2. Faculty of Economics and ICS, University of Navarra, Spain;1. Department of International Business, Southern Taiwan University of Science and Technology, Taiwan;2. Department of Agricultural Economics, National Taiwan University, Taiwan;3. Department of Political Economy, National Sun Yat-Sen University, Taiwan;1. Federal Reserve Board, 6333 Brocketts Crossing, Kingstowne, VA 22315, United States;2. Department of Mathematics, Temple University, Philadelphia, PA 19122, United States;3. Economic Research Department, Bank of Greece, 21 El. Venizelos Ave., 102 50 Athens, Greece;4. Leicester University and Bank of Greece, Room Astley Clarke 116, University Road, Leicester LEI 7RH, UK |
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| Abstract: | This paper incorporates the concept of real option into a modified Harris–Todaro model to investigate the relationship between higher education and unemployment rates. We found that the real option value of waiting to invest in graduate school education will decrease when the expected wage rate of labors with an undergraduate degree becomes relatively lower than that with a graduate degree. As a result, more undergraduate students will decide to go to graduate schools immediately after graduation. As the supply of labors with a graduate degree increases and the job creations fail to meet the increasing demand, those who cannot get a graduate-level job will be willing to accept job offers lower than their education level. Our modified Harris–Todaro model shows that it will lead to an increase in the number of unemployed and underemployed higher educated labors. This explains why the unemployment rates for higher educated labor are relatively high in some developed countries. |
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