Human Capital Investment -

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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.

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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-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.

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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?

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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.

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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.

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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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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 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/co
l (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 (Student Job Fair Wednesday Aug. 27
  10am-2pm in the 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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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

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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
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Changing Careers
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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?pagenameed
  ucation_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?pagenameed
  ucation_pays)

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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.
Unemployment Rate Educational Level Median Weekly Earnings
2.2 Doctoral Degree 1,623
2.3 Professional Degree 1,714
3.4 Masters degree 1,329
4.0 Bachelors degree 1,108
5.4 Associate degree 777
7.0 Some college, no degree 727
7.5 High-school graduate 651
11.0 Less than a high school diploma 472
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 Educational Level Median Weekly Earnings
2.0 Doctoral Degree 1,561
1.7 Professional Degree 1,531
2.4 Masters degree 1,233
2.8 Bachelors degree 1,012
3.7 Associate degree 757
5.1 Some college, no degree 699
5.7 High-school graduate 618
9.0 Less than a high school diploma 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 2013 compared to 2008 annual averages
for persons age 25 and over. Earnings are for
full-time wage and salary workers.
Unemployment Rate Educational Level Median Weekly Earnings
2.2 ( .2) Doctoral Degree 1,623 ( 623.97)
2.3 ( .6) Professional Degree 1,714 ( 183 11.95)
3.4 ( 1.0) Masters degree 1,329 ( 96 7.79)
4.0 ( 1.2) Bachelors degree 1,108 ( 96 9.49)
5.4 ( 3.3) Associate degree 777 ( 20 2.64)
7.0 ( 1.9) Some college, no degree 727 ( 28 4.01)
7.5 ( 1.8) High-school graduate 651 ( 33 5.34)
11.0 ( 2.0) Less than a high school diploma 472 ( 19 4.19)
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? (2014 s)
University of Utah
Tuition fees for 2 semesters 7,835
Books 1,800
Foregone Earnings (2013 HS degree men, 651 x 52) 32,852
Total Costs 42,487
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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 n40, r 1.9, FV
  23,764 ((1,108 - 651) x 52)
• Marginal Costs
• PVA 259,387
• Marginal Benefits
• PVA 1,404,078

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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.