Remembering Jacob Mincer, a pioneer of labour economics, on his birth centenary

It might sound somewhat bizarre today but not so long ago, it was widely believed that individuals’ earnings were determined by pure ‘luck’. Thus, earnings inequality was thought to exist because some people were lucky while others were not!

In 1958, an article published in the Journal of Political Economy (JPE), a top-tier peer reviewed journal of economics, challenged this belief. The article titled ‘Investment in human capital and personal income distribution’ demonstrated empirically that earnings of individuals are majorly determined by individuals’ investments in education (formally ‘human capital’) which individuals choose rationally by comparing the costs of investments and the present value of gains from schooling. Hence disparities in earnings that we witness in the society should be attributed to disparities in educational investments; luck plays no role whatsoever in determining individuals’ earnings (and earnings distribution). The findings were extremely important since they meant that a tangible instrument—education, that is—had ultimately been found which the policymakers could potentially use to raise earnings of individuals and ease deprivation!

The author of this article was a 36-year old Polish-American scholar named Jacob Mincer who had then just completed his Ph.D. from Columbia University, New York. Over time, Mincer’s JPE article came to be regarded as a foundational paper of modern labour economics that had strong implications for economic growth, and Mincer, for modernizing the field through his analytical research on human capital and other related areas, as a founding father of labour economics. This year marks the 100^th birth anniversary of this legendary economist, without the discussion of whose work, to date, no course in labour economics is deemed complete.

Mincer was born into a Jewish family in Poland on July 15, 1922. He was in his first year of university studies in Czechoslovakia when the Second World War started. After the war, Mincer was able to get a fellowship to study at Emory University in the United States where he arrived in 1946. He earned a bachelor’s degree in economics from Emory there in 1950. In 1951, Mincer went to Chicago University to pursue graduate studies. A year later he moved to New York City to accommodate the new job of his wife, and joined Columbia University as a graduate student. Mincer wrote his dissertation in the area of price theory under the supervision of two well-known economists George Stigler and Harold Barger. His JPE paper on investments in human capital was, in fact, based on his dissertation. Mincer spent most of his academic career as a faculty at the Columbia University from where he retired in 1991.

Undoubtedly, Mincer’s most important contribution to labour economics was his work on human capital and earnings which culminated in his classic 1974 book Schooling, Experience, and Earnings. Additionally, Mincer worked on labour supply of married women. Empirical study of the labour supply decisions of married women offered a considerable challenge for any economist in the 1950s. It was observed from data that, over time, while wages of men and women had both increased, men were working less whereas women were working more. However, the traditional labour theory predicted that after a certain threshold, with a rise in wage everyone’s work effort should fall because the ‘income effect’ of wage change (the desire put in less work effort and ‘buy’ more leisure following a wage increase) is likely to dominate the ‘substitution effect’ (the desire to substitute leisure with work effort following a wage increase). While men’s behaviour conformed to this theory, clearly women’s behaviour did not. Why was that the case?

Mincer showed through analytical research that this can be explained by the traditional division of labour in the family, in which women are seen as substituting among market work, home production (e.g., child rearing) and leisure, while men are viewed as substituting only or primarily between market work and leisure. Since women had closer substitutes for time spent in market work than men do (indeed market work is a closer substitute of home production than leisure), increase in wages had significantly large substitution effects on women’s labour supply which outweighed the income effect of wage change. Thus, the net effect of women’s wage increase on labour supply was positive as observed empirically.

Mincer combined his interests in human capital and female labour force participation in work on gender wage gap. Previous studies had documented large differences in wages between men and women. Further it was found that growth of earnings with additional experience was smaller for women than for men. Mincer proposed an economic explanation for this phenomenon. He argued, men tended to specialize in market production and women tended to specialize in home production. Married women, thus, had less incentive to invest in human capital (or market-oriented skills) compared to men. This translated into less growth of married women’s labour market skills over work life compared to men, and smaller total accumulations of their market skills at any point than men. Both wage growth and average wage rates would be smaller for women than men as a result. Indeed, using data, Mincer proved that his argument was empirically valid.

Mincer passed away on August 23, 2006 at the age of 84 from complications of Parkinson’s disease. After his death, David Card, who won the Nobel prize in Economics in 2021, rightly remarked, “the close blending of theory and data represented in Mincer’s work has shaped the direction of labour economics and influenced and inspired all those who have followed him”. In light of the growing income inequality in the post-COVID world and the persistence of problems related to female labour supply and male-female wage differentials, perhaps it would not be a stretch to say that the relevance of Mincer’s work now is more than ever before.

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