14 Human%20Capital%2020 - More education higher wages(on...

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  
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  More education higher wages (on average) Observation: Not everyone completes high school, goes to college, etc. Why? Wages are only one part of the story There are costs too – Direct costs and Forgone earnings
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      Present Value: Optimal Stopping Model: Go to school as long as T T r y r y r y r y y PV ) 1( $ ... ) $ ) $ ) $ $ 3 3 2 2 1 0 + + + + + + + + + = MRR r <
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                
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      Years of Schooling Years of Schooling Rate of Interest S 2 S 1 r MRR 1 MRR 2 Dollars S 2 S 1 w 2 w 1 2 1
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    Years of Schooling Dollars S 2 S 1 w 2 w 1 2 1 Increase due to schooling Difference due to ability
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      ------ ability ------ earnings Fraction of Population Ability/Earnings
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         Option A Option B 1) Receive $120 in 1 week Receive $20 today 2) Receive $120 in 1 week Receive $40 today 3) Receive $120 in 1 week Receive $60 today 4) Receive $120 in 1 week Receive $80 today 5) Receive $120 in 1 week Receive $100 today 6) Receive $120 in 1 month Receive $20 today 7) Receive $120 in 1 month Receive $40 today 8) Receive $120 in 1 month Receive $60 today 9) Receive $120 in 1 month Receive $80 today 10) Receive $120 in 1 month Receive $100 today 11) Receive $120 in 1 month Receive $20 in 1 week 12) Receive $120 in 1 month Receive $40 in 1 week 13) Receive $120 in 1 month Receive $60 in 1 week 14) Receive $120 in 1 month Receive $80 in 1 week 15) Receive $120 in 1 month Receive $100 in 1 week
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0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Today Later       In a week In a month
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    55% of you plan to go to grad school at some point MBA, Accounting, Econ                    
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 PS 3 is due Thursday, 10/14 Policy Application: Financial Aid Empirical Returns to school Magnitude of return
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This note was uploaded on 01/19/2011 for the course ECON ECON 440 taught by Professor Kristinebrown during the Fall '10 term at University of Illinois at Urbana–Champaign.

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14 Human%20Capital%2020 - More education higher wages(on...

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