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.
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
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.
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?
Obtaining Employment Experience • Part-time employment • Volunteer work • Internships • Campus projects
Using Career Information Sources • Library • Media Center • Online • Career Services Office (SSB 350, 581-6786)
Social Influences City 1 Index number x salary City 2 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)
Networking • Community organizations • Professional organizations • Business contacts
Identifying Job Opportunities • Job advertisements • Career fairs (Student Job Fair Wednesday Aug. 27 10am-2pm in the Union Ballroom) • Employment agencies • Job creation • Other methods
Applying for Employment • Resume • Cover letter • Interview
Accepting an Employment Position • Work environment • Factors affecting salary
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
Tax-Equivalent Employee Benefits Value of the benefit this formula calculates the tax-equivalent value of a (1-Tax Rate) 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 = $350 1-.28 .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
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)
Unemployment Rates and Earnings Differences by Education Data are 2013 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
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
Unemployment Rates and Earnings Differences by Education Data are 2013 compared to 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
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 = $42,487 • For the benefits, use n=40, r = 1.9%, FV = $23,764 (($1,108 - 651) x 52) • Marginal Costs: • PVA = $259,387 • Marginal Benefits: • PVA = $1,404,078
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).
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
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
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.
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.