Topic 4: Education & Income

Question 1

What is investment for labourers?

Answer 1

1. Education & training
2. Searching for potentual work
3. Migratory movements

Question 2

What are the two theories to explain investment in education?

Answer 2

1. Human Capital Theory

2. The Spence Model

Question 3

Explain the human capital theory

Answer 3

Education makes workers more productive, and so they will be paid more. Workers will invest in education only when the present value exceeds the present costs

Question 4

What kind of costs are there to education?

Answer 4

• Direct costs; tuition, books, supplies, HEX, ect
• Indirect costs; forgone earnings, opp. cost of time
• psychic costs; everything else - stress, ect

Question 5

What kinds of returns are there to human capital investment?

Answer 5

• higher expected earnings
• more pleasant jobs
• lower expected unemployment rates
• psychic benifits (uni life, ect)

Question 6

What factors influence demand for uni education?

Answer 6

1. Preference (patience, love of education, ect)
2. Age (young people)
3. Cost of attendance
4. Wage differentials (W(uni)-W(HighSchool) )
5. Demographic factors (ethnicity, parents education, gender, etc.)

Question 7

How do employers respond to education in hiring?

Answer 7

Will demand different skill types, and offer different wages by skill class.
ie, uni defines skill type, but on the job training affects skill, and so employers affect human capital themselves

Question 8

Outline the characteristics of the typical age-earnings profile

Answer 8

• Earnings increase with increased education at any age
• Rapid increase in early ages, due to on the job training
• Bigger wage differences from skill type as age increases
• Gender gap by skill type