ABSTRACT
This chapter discusses the consequences for educational decision making, occupational choice and thereby the workings of the labour market of treating education as an investment good within the traditional utility/profit-maximising paradigm. The human capital approach provides the basis for a model of occupational choice. Severe financial constraints exist because it is generally impossible to borrow money for human capital investments on anything like the same terms as for physical capital investments. The resource allocation implications of the human capital model depend on the existence of direct causal links running from education to productivity and from productivity to earnings. The extension of economic jargon can be justified if the application of traditional physical capital and investment theory to education decisions provides new, interesting predictions on the workings of labour markets which are supported by empirical evidence. The internal rate of return is analogous to the marginal efficiency of capital for a non-human investment.
