where X ,Y and Z are salaries in year t for different activities, t t t r is the discount rate, t=O is the time when compulsory schooling and t=T is the time of retirement. Present values of lifetime earnings are equal for all individuals. Thus they do not vary e.g. with the amount of schooling, or differ between private and public employment. The equilibrium condition permits zero income during schooling. Higher initial salaries in some activ-' ities may be compensated for by steeper age-earnings curves in other activities. In reality salaries differ among individuals because some of the assumptions are not realistic. Choice of education and jobs is influenced by non-pecuniary benefits and costs such as the length of paid vacation, job security, the benefits from pleasure of studying, etc. Variations in levels of productivity and thus salary differentials are brought by individual differences in ability. There is no free access to all educational institutions. This results in monopoly gains for graduates. The long-run equilibrium cannot be attained if demand curves shift continually because of technological change.
5.
EFFECTS OF HUMAN CAPITAL INVESTMENTS ON EARNINGS
Investment in human capital takes place when ~arnings are forgone during a period in order to increase future earnings. There is complete specialization in investment activities during schooling, whereas in working life part of the time may be spent investing and the other part in direct productive activities. The effects of schooling on salaries may be distinguished from the effect of on-the-job training by investigating a case where investment activities do not occur during working life, i.e. investment through on-the-job training is zero. In this case the age-earnings profile would be horizontal as earnings capacity would not be increased by investments. In equilibrium, present values of lifetime earnings for different educational groups are equal and, in accordance with Mincer [1974], we define n as a fixed number of years of experience equal among individuals
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