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Chapter 9

Investments in Human Capital:Education and Training

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EDUCATION & TRAINING

• Education/Training - raises stock of human capital• Migration/Job Search - raises value of the stock• Societal Choice and Individual Choice

– Global competition, high tech jobs etc.

– US schools fare poorly (6th out of 6 in table 9.4)

• Human capital is $305,000/person in US– $387,000 in Germany– $563,000 in Japan– 59% of wealth in US– 64% of wealth worldwide

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Costs and Benefits

• Costs– out of pocket (tuition)– lost earnings– psychic costs

• Benefits– wages– job satisfaction– non-market benefits (personal satisfaction,

reading, self-esteem)

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Examples – Costs/Benefits

• 44% of high ability students from low income families attend college. 74% from high income families go. Costs matter

• When financial aid rises more slowly than tuition, these rates fall even lower.

• During Vietnam War enrollment rates rose 7%. One study showed that your draft lottery number affected college enrollment choices.

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The Optimum Acquisition of Human CapitalFigure 9.1

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Alternative Earnings StreamsFigure 9.2

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Optimal Choice

• Gap between high school and college determines wage benefits

• Recession in early 90s:– high school grads lost 15% of their salaries– college grads lost 8%– gap rose and more people went to college– 4 years later: college grads’ wages fell while

high school grads wages rose. Gap fell again.

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Money Earnings (Mean), for Full-Time, Year-Round Male Workers,1997

Figure 9.3

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Money Earnings (Mean), for Full-Time, Year-Round Female Workers, 1997

Figure 9.4

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The Increased Concavity of Women’s Age/Earnings ProfilesFigure 9.6

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GENDER DIFFERENCES

• Why do women with college degrees benefit less particularly in terms of experience?

• Experience seems to be less important– may be choosing jobs where experience is less

important (non-corporate career paths)– maybe taking time out of labor market so that age

is not a good measure of experience• Overall: women might choose less education

– gap is smaller– less time in labor market to receive benefits

• Women receive > 50% of college degrees. Why?

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RETURN ON EDUCATION

• Wage estimates: 5-12% return

• Biased estimates?– Upward bias - people who become educated are

on average smarter, more ambitious etc and would have received higher wages anyway.

– Downward bias - many benefits are left out. This only measure the dollar value.

– Selection bias - Managers may be poor mechanics!

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Investment in On-the-Job Training over the Life CycleFigure 9.5

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The Benefits to Workers of Educational SignalingFigure 9.7

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The Lifetime Benefits and Costs of Educational SignalingFigure 9.8

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The Labor Market for EngineersFigure 9A.1

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The Labor Market for Engineers: A Cobweb ModelFigure 9A.2

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• http://www.bls.gov/emp/emped00.pdf

• http://www.census.gov/prod/2004pubs/p20-550.pdf