Household schooling investment: Local labor market influence

The objective of this study is to examine the influence of local labor markets and non-labor market factors on household education investment. Examining the relationship between household schooling choices, non-labor market factors, and local labor markets yields insight into how these factors influence household education investment. Ultimately, the study will be of importance to policymakers concerned about the changing structure of the Indiana economy and the expected increase in demand for a more highly skilled labor force. The local labor market hypotheses was tested using a conceptual model based on the intra-household resource allocation (IHRA) model developed by Becker and Tomes (1979). The IHRA model provides a theoretical basis to examine a household's derived demand for education in response to local labor market and non-market influences. The IHRA model originated from the household production model. One of the assumptions of the household production model is that household members do not derive direct utility from goods, instead, households combine market goods and time to produce higher order goods which are valued directly. The IHRA model adds one additional assumption by incorporating a household's endowments in the demand process. A multinomial logit model was used to test whether local labor markets and non-labor markets influence the household demand for education. The first year survey of a longitudinal study of 5,000 households from twenty-one Indiana High Schools was used in combination with Indiana local labor market data to test the local labor market hypothesis. The results of the model indicate that local labor markets influence the household demand for schooling. Within the household, local labor market signals influencing the household demand for schooling include wage structure, income distribution, and job opportunities. Furthermore, household and public school resources were also found to encourage household's to invest in additional postsecondary education.