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Human capital is the result of past investment that raises future incomes. A critical choice for individuals is to decide upon exactly how much additional human capital to accumulate. The cost of investing in another year of school is the direct cost, such as school fees, plus the indirect, or opportunity, cost, which can be measured by the foregone earnings during that extra year. The benefit of the additional investment is that the future flow of earnings is augmented. Consequently, wage differentials should reflect different degrees of education-dependent productivity.
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