THE "NEOCLASSICAL" PERSPECTIVE:
THE IMPLICATIONS OF CHOICE
When any expensive machine is erected, the extraordinary work to be
performed by it before it is worn out, it must be expected, will replace
the capital laid out upon it, with at least the ordinary profits. A man
educated at the expense of much labour and time to any of those
employments which require extraordinary dexterity and skill, may be
compared to one of those expensive machines. The work which he
learns to perform, it must be expected, over and above the usual wages
of common labour, will replace to him the whole expense of his
education, with at least the ordinary profit of an equally valuable capital.
It must do this too in a reasonable time, regard being had to the very
uncertain duration of human life, in the same manner as the more
certain duration of the machine.
The difference between the wages of skilled labour and those of
common labour is founded upon this principle.
The Wealth of Nations (1776)
These words of Adam Smith have been much repeated in the more than two centuries since they were penned. Today, this small paragraph has expanded into a vast and growing "human capital" literature which represents the largest and most influential economic approach to the differences of individual earnings. In this chapter we outline the "neoclassical" approach to the study of economic inequality. The theory comes in two parts—that which concerns the determination of individual earnings (section 8.2) and that which concerns the determination of the distribution of earnings (section 8.3). As we shall see, the link between these parts can be questioned. The implications of this debate extend beyond economics, in that such sociological approaches as status attainment