Individual Choice and Human Capital

  • Period 4/5.
  • Track-dependent elective course.


Human capital can be viewed as capital derived from investments in education and health. Both factors determine the returns on the labour market (work outcomes, income and wealth) and in general individual well-being. The joint distribution of education, work, income and health evolves across the life cycles of individuals as they grow from childhood, where they make educational choices, to adolescence, when they enter the labour market and decide whether or not to marry and with whom up to prime ages and later when they enter the phase from working age into retirement. In the final stage the larger part of health care is consumed. The course starts with an overview of some stylized facts concerning the returns on education, labour and health. N ext, the course introduces the most important microeconomic models of investment behavior in the field of education, labour (search) and health. Throughout the course, theories are confronted with empirical papers that test these theories and their consequences for public policy in the area of income, health and work. Finally, the course addresses the issue of how to appropriately evaluate the effectiveness of public and social policies in the field of income, health and work.


This course aims at providing a solid understanding of the microeconomic theories in the area of education, health and work and of how modern techniques are used to confront theory with what is observed in reality. Examples of specific learning outcomes upon completion of this curricular item are to:

  • Understand why and how people make educational choices and the role that school allocation mechanisms can play in educational outcomes
  • Acquire knowledge of the human capital literature and the returns on education
  • Acquire knowledge of theories of individual labour market behaviour and how elements such as search frictions and the institutional context determine labour market outcomes
  • Learn about sorting in the labour and marriage market: Who marries whom? at In which jobs do high and low skilled workers end? What are the effects of this on inequality? How does technology affect sorting patterns?
  • Obtain knowledge of the literature on the determinants of health and mortality
  • Obtain knowledge and understanding of important theoretical models on the production of health and life style choices
  • Obtain knowledge of how ageing affects the labour market and potentially threatens elements of our social security and welfare system.
  • Obtain knowledge of the application and the effectiveness of public policy in the field of income, health and work across the life cycle.

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