Term 2 - Chapter 5 & Chapter 6

Question 1

Draw the basic model of human capital graph

Answer 1

Look at notes

Question 2

What is the PV equation?

Answer 2

Notes

Question 3

What is the IRR equation?

Answer 3

K/C

Question 4

Apply the IRR equation to education

Answer 4

K = 27,000-17,000 = 10,000

C = 3x17,000 = 51,000

IRR = 20%

Question 5

Draw the supply and demand graph for human capital

Answer 5

Notes

Question 6

Draw the age and human capital graph and explain

Answer 6

Notes

Question 7

Draw the ability, wealth and gender graph and explain

Answer 7

Notes

Question 8

Children’s ability develops in the womb meaning what?

Answer 8

Even fetal growth is lower in poor families

Less reading to the child
Less visits to the library
More TV and going to bed later

Also single families: tend to lack work, be poor, cannot look after children and lay foundations for education

UK also has hug intergenerational earnings correlation, poor remain poor

Question 9

Draw the social IRR graph and explain

Answer 9

Notes

Question 10

Why do governments subsidise education?

Answer 10

External benefits: democracy and higher taxes

Equity: poor can’t fund themselves

Question 11

What is the equation for social IRR?

Answer 11

Change in taxes over subsidy

Question 12

Explain the social IRR

Answer 12

Social IRR includes more than extra taxes of course, since uni education helps democracy and reduces crime

Also more educated people might help less educated via the trickle down effect

The social IRR also misses the quality issue of uni, since it is bad for unis to depend too much on state handouts
- best unis are private like Harvard and the student reciprocate by not donating in later life

Question 13

Explain what screening is?

Answer 13

Education is said to be merely a ‘signal’ of pre-existing productivity

But why do education earnings differentials remain for long service workers?

Identical twins studies show 10-15% IRR for education

Self employed have similar IRR to the employed

Question 14

Draw the general training graph and explain

Answer 14

Notes

Question 15

Draw the specific training graph and explain

Answer 15

Notes

Question 16

Why does the UK have a large training policy?

Answer 16

U.K. Government believes there’s not enough training due to a fear of poaching

No notice is taken of sitting by nelly type training, certificates are the thing

Question 17

What are the concerns regarding over education?

Answer 17

Government subsidies for higher education are about 2% of GDP, and big increase in university entry, particularly for women

Hence fears of overeducation = in some sense underutilisation of qualifications, I.e. Low IRR

But we see no fake in ‘graduate mark up’ (k) - compared to school leaving - it seems as though D has kept pace with S

Question 18

Explain the relevance of computers to education

Answer 18

Computers might underlie the need for greater education - and hence the maintenance of the graduate premium even in the face of big rises in grads

Computers complement skilled workers, substitute for unskilled (similar to capital in general)

Question 19

Summarise the information on human capital

Answer 19

IRR on human capital 10-15%, similar to physical capital - hence ‘human capital’ theory supported

IRR not driven by unmeasured ability, or ‘signalling’, but productivity. It is a CWD for sacrifices of becoming educated

Education important for taxation, democracy and growth

Need to equalise opportunities because of capital market imperfection

Question 20

What’s the basic picture behind labour market discrimination?

Answer 20

Women earn less than men - tend to be in lower paying occupations

But even within occupations women earn less - partly because they work fewer hours

Women have interrupted wok careers: at age 30, women who are mothers earn 25% less and women who are not earn 10% less

Question 21

Define discrimination

Answer 21

Unlike treatment of likes

Workers with identical productivity characteristics being paid less

Question 22

Explain the theories behind discrimination

Answer 22

Employer ‘tastes’ against women/blacks - but why?

• consequence is lost profits ‘the discriminator pays’

Implication: employer discrimination more likely in monopoly, especially government (non-transferable)

Evidence: fewer women managers where regulation stops entry e.g. Banking

When US trucking deregulated, black-White wage gap decreased

UK police ‘institutionally racist’ but is this due to union?

Question 23

Draw the employer taste discrimination graph and explain

Answer 23

Notes

Question 24

Draw the employer and employee tastes discrimination graph and explain

Answer 24

Notes

Question 25

Why is fellow worker discrimination more plausible than firm?

Answer 25

Since workers gain from excluding competition

The reason is taste not money

E.g. South Africa - White unions underpinned apartheid

Question 26

Explain statistical discrimination

Answer 26

‘Stereotypes’ - judging by person’s group, e.g. Women live longer, so pension premiums should be higher - obviously atypical members lose out

Note use of ‘wrong’ or ‘noisy’ statistical tests will cause lost profits

Evidence: fake job application studies - Indians, Afro-Carribeans less likely to get offered job interviews, Australians more likely

Even greater variation in women (average the same) will cause them to earn less

Question 27

What do segmented and dual labour markets depend on?

Answer 27

Depend on immobility and ‘crowing’

Women do a small range of jobs compared to men ‘occupational segregation’ - is this due to tastes or men?

Question 28

Draw the measuring discrimination graph and explain

Answer 28

Notes

Question 29

What are the explanations regarding differences in preferences?

Answer 29

Women less interested in money/leading, more in relationships

Preferences formed by parents - ‘pre-labour market’ discrimination?

Evidence: men 20 or 30 times more likely to go to prison

Question 30

Explain when anti-discrimination law came into effect in the UK and subsequent issues that followed

Answer 30

U.K. did not have an anti-discrimination policy until required by the European Union in 1979 (equal pay act) and 1975 sex discrimination act…all merged into a new Equality Act 2010 which allows ‘positive action’ in hiring

Now a discrimination industry with anti age discrimination and disability discrimination

Question 31

Draw the discrimination policy graphs and explain

Answer 31

Notes

Question 32

Explain what ‘equal value’ in Birmingham means

Answer 32

Notes

Question 33

Draw graphs illustrating how pensions can be calculated unfairly based on discrimination

Answer 33

Notes