Human Capital Investment -

1. Human Capital Investment - The process of increasing the household’s holdings of human wealth either by engaging in formal or informal training or by adding household members.

2. 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

3. 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-of-pocket costs of education • Brighter individuals get more education because they are more likely to see that the marginal benefits exceed the marginal costs.

4. 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?

5. 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.

6. Career Choice Factors (continued) 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?

7. Career Training and Skill Development • 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.

8. Average wages, all workers over 25 – 2007 Data: Current Population Survey (CPS) 2008 http://pubdb3.census.gov/macro/032008/perinc/new03_001.htm

10. Developing a Career Action Plan

12. Obtaining Employment Experience • Part-time employment • Volunteer work • Internships • Campus projects

13. Using Career Information Sources • Library • Media Center • Online • Career Services Office (SSB 350, 581-6786)

14. Networking • Community organizations • Professional organizations • Business contacts

15. Identifying Job Opportunities • Job advertisements • Career fairs • Employment agencies • Job creation • Other methods

16. Applying for Employment • Resume • Cover letter • Interview

17. Accepting an Employment Position • Work environment • Factors affecting salary

18. Cumulative Earning Potential Based on Degree Earned

19. Evaluating Employee Benefits • Meeting employee needs • Flexible work schedules • Work-at-home arrangements • Legal assistance • Flexible spending plans • Comparing benefits • Market value • Future value • Tax impact

20. Changing Careers

22. Average Earnings in 1982 & 2002: Males 25-34 Education Data: National Center for Education Expenses 2002 $ / yr.

23. 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 bachelor’s 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)

24. 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. Source: Bureau of Labor Statistics, Current Population Survey. http://www.bls.gov/emp/ep_chart_001.htm

25. What are the costs? (2009 #s)

26. 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, I = 10%, FV = $38,268 • For the benefits, use n=40, I = 3%, FV = $20,488 (($1,012 - 618) x 52) • Marginal Costs: • PVA = $233,626 • Marginal Benefits: • PVA = $1,544,816

27. 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).

28. 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

29. 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

30. Reported Voting Rates by Age and Education Level, 2000 Source: U.S. Census Bureau. (2002). Voting and Registration in the Election of November 2000.

31. Source: Harlow, C.W. (2003). Education and Correctional Populations. Bureau of Justice Statistics, Department of Justice. NCJ195670. Incarceration Rates by Education Level, 1997

32. If education is such a good investment, why doesn’t 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.

33. Mean Annual Earnings by Occupation 2006 Data: BLS http://www.bls.gov/ncs/ocs/sp/ncbl0910.pdf

34. 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.