Human Capital Investment The process of increasing the households holdings of human wealth either by engaging in formal or informal

training or by adding household members.

Examples of Human Capital Investment...

 getting a college education  teaching your son or daughter how to cook  learning carpentry skills in an apprentice program  sharing your life with a partner  having a child  reading the newspaper
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Theory of Human Capital Investment

  People are investing in human capital by going to school. The returns (or benefits) of this human capital investment include  higher earnings  lower probability of unemployment The costs include foregone earnings while in school and out-ofpocket costs of education Brighter individuals get more education because they are more likely to see that the marginal benefits exceed the marginal costs.

 

Investment in Education
 What are the differences in earnings by educational attainment?  Holding years of education constant, why do earnings vary by
 occupation?  gender?  race?

Career Choice Factors

 Job-an employment position obtained mainly to earn money  Career-a commitment to a profession that requires continued training and offers a clear path for occupational growth.

Career Choice Factors

 

Level of formal training affects financial success Training may be viewed in two main categories


Technical Skills refers to specialized career training for a specific profession. General Skills are traits adaptable to most work situations. Some can be acquired at school, while others require experience.

Career Choice Factors

PERSONAL FACTORS
  Aptitudes - What natural abilities, such as working well in team settings, do you possess? Interests inventories - Help you determine what gives you satisfaction. Your personality - How much structure do you like? Do you perform best in low-pressure or high-pressure working environments?
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Average wages, all workers over 25 2007

Doctorate Professional Degree Masters Degree Bachelor's Degree HS < HS 0 70,559 Avg Salary 59,365 33,609 21,881 50,000 100,000 150,000 95,785 121,340

Data: Current Population Survey (CPS) 2008 http://pubdb3.census.gov/macro/032008/perinc/new03_001.htm

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Source: www.collegeboard.com
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Developing a Career Action Plan

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Obtaining Employment Experience

    Part-time employment Volunteer work Internships Campus projects

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Using Career Information Sources

    Library Media Center Online Career Services Office (SSB 350, 581-6786)

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Social Influences
City 1 City 2 Index number x salary Index number = $ buying power

If Omaha, Nebraska has an index number of 93.3 and Chicago has an index number of 123, a person moving from Omaha making $30,000 annually would need to make $39,550 in Chicago to be making the same real salary: 123 x $30,000 93.3 = $39,550
Cityrating.com/costofliving.asp Bestplaces.net/col (separates into categories)

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Networking
 Community organizations  Professional organizations  Business contacts

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Identifying Job Opportunities

 Job advertisements  Career fairs (Career Fair August 24, 2011, 10:00am2:00pm Union Ballroom)

 Employment agencies  Job creation  Other methods

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Applying for Employment

 Resume  Cover letter  Interview

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Accepting an Employment Position

 Work environment  Factors affecting salary

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Cumulative Earning Potential Based on Degree Earned

Education

Avg. Income

No high school graduation

$1,573,851

High school graduate

$2,342,793

Bachelors degree

$4,281,887

Advanced degree

$6,207,032

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Evaluating Employee Benefits

 Meeting employee needs
       Flexible work schedules Work-at-home arrangements Legal assistance Flexible spending plans Market value Future value Tax impact

 Comparing benefits

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Tax-Equivalent Employee Benefits

Value of the benefit (1-Tax Rate) this formula calculates the tax-equivalent value of a non-taxable benefit. Example: Receiving a $350 tax free benefit is worth $486 of taxable benefits if you are in the 28 percent tax bracket, calculated as follows: $350 1-.28 = $350 .72

=$486

A variation of this formula would give the after-tax value of a taxable benefit: Taxable value of the benefit x (1-Tax Rate) Using the above example, $486 (1-.28) = $486 (.72) = $350

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Changing Careers

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Variation in Earnings Within Education Levels

Grades 9-11 High School Graduate Some College, No Degree Associate Degree Bachelor's Degree Master's Degree or Higher $1 - $19,999 2 11 8 39 23 12 22 $40,000-$59,999 $60,000-$79,999 27 19 $100,000 or more 19 40 31 19 13 31 46 27 51 23 12 14 10 12 31 2 5 5

$20,000-$39,999

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The Return on Educational Investments has Grown Over Time

 Earnings of BA/BS recipients have grown more than inflation over the last 30+ years, with advanced degree holders capturing the largest return Earnings of high school graduates have lost ground relative to inflation. The typical bachelors degree recipient can expect to earn 73% more over a 40 year working life than the typical high school graduate (http://tsp.convio.net/site/PageServer?pagename=education_pays) By the age of about 33, the typical college graduate has earned enough to compensate for both paying full tuition and fee charges at the average public four-year college and foregone earnings with a high school degree (http://tsp.convio.net/site/PageServer?pagename=education_pays)
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Unemployment Rates and Earnings Differences by Education

Data are 2010 annual averages for persons age 25 and over. Earnings are for full-time wage and salary workers.

Unemployment Rate 1.9% 2.4% 4.0% 5.4% 7.0% 9.2% 10.3% 14.9%

Educational Level Doctoral Degree Professional Degree Masters degree Bachelors degree Associate degree Some college, no degree High-school graduate Less than a high school diploma

Median Weekly Earnings $1,550 $1,610 $1,272 $1,038 $767 $712 $626 $444

Source: Bureau of Labor Statistics, Current Population Survey.

http://www.bls.gov/emp/ep_chart_001.htm

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Unemployment Rates and Earnings Differences by Education

Data are 2008 annual averages for persons age 25 and over. Earnings are for full-time wage and salary workers.

Unemployment Rate 2.0% 1.7% 2.4% 2.8% 3.7% 5.1% 5.7% 9.0%

Educational Level Doctoral Degree Professional Degree Masters degree Bachelors degree Associate degree Some college, no degree High-school graduate Less than a high school diploma

Median Weekly Earnings $1,561 $1,531 $1,233 $1,012 $757 $699 $618 $453

Source: Bureau of Labor Statistics, Current Population Survey.

http://www.bls.gov/emp/ep_chart_001.htm

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Unemployment Rates and Earnings Differences by Education

Data are 2010 compared to 2008 annual averages for persons age 25 and over. Earnings are for full-time wage and salary workers.

Unemployment Rate 1.9% ( .1%) 2.4% ( .7%) 4.0% ( 1.6%) 5.4% ( 2.6%) 7.0% ( 3.3%) 9.2% ( 3.1%) 10.3% ( 4.6%) 14.9% ( 5.9%)

Educational Level Doctoral Degree Professional Degree Masters degree Bachelors degree Associate degree Some college, no degree High-school graduate Less than a high school diploma

Median Weekly Earnings $1,550 ( $11) $1,610 ( $79) $1,272 ( $39) $1,038 ( $26) $767 ( $10) $712 ( $13) $626 ( $8) $444 ( $9)

Source: Bureau of Labor Statistics, Current Population Survey.

http://www.bls.gov/emp/ep_chart_001.htm

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What are the costs? (2011 #s)

Tuition & fees for 2 semesters Books Foregone Earnings
(2010 HS degree men, $626 x 52)

University of Utah $7,768 $1,800 $32,552 $42,120

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Total Costs

Cost-Benefit Assessment...


Do the marginal benefits of education outweigh the marginal costs at the University of Utah?


Compute the present value of the annuity (PVA) for both the marginal costs and marginal benefits and compare:  For the costs, use n = 5, r = 10%, FV = $42,120  For the benefits, use n=40, r = 3%, FV = $21,424 (($1,038 - 626) x 52)

Marginal Costs:
PVA = $257,143

Marginal Benefits:
PVA = $1,615,391
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Cost-Benefit Assessment...


In this instance, the benefits are clearly greater than the costs, but this may be an underestimate of the actual net benefits Why?
 May understate income growth more than college costs because of the difference in the time horizon.  Does not factor in the value of the retirement benefits that are likely to accrue because of a better job.  Does not factor in other fringe benefits that are typically associated with a better job (e.g., health insurance, disability insurance, child care subsidies).
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Are Gains in Earnings and Related Financial Factors the Only Benefits of a College Education?


Other benefits that accrue to the individual or household



greater efficiency in household production activities (e.g., shopping behavior, family finances, child development) greater non-pecuniary benefits of employment (e.g., occupations where you set your own hours, work at home, do more challenging tasks, reduce health risks) better relationships in general; especially better marriage rltnshps
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Are Gains in Earnings the Only Benefits of a College Education?



Other benefits that accrue to society (i.e., social benefits)



 

more informed voters and more likely to participate in the political process additional earnings raise the tax base less likely to engage in illegal activities

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If education is such a good investment, why doesnt everyone get a Ph.D.?

 Situations where the opportunity costs are exceptionally high.  Situations where the out-of-pocket costs are prohibitively high (e.g., low-income households).  Situations where other, non-pecuniary costs are quite high (e.g., time needed to study).  Situations where the marginal benefits are exceptionally low.

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Why do earnings vary by occupation, controlling for years of education?

 Cost-Benefit Differentials
 Recognition of differential educational investment (e.g., acquiring economic knowledge may be easier than acquiring chemistry knowledge) Recognition that some occupations confer enjoyment above and beyond salary while others do not. Recognition that there may be risks to the employee that one needs to compensate for (e.g., health considerations Recognition that some jobs require more hours of work than others. Recognition of differentials in on-the-job training.

   

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