HW_C9 - #$(01#$#23 4516/7 5(8 9 Chapter 9 introduces...

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4516#%/7+ #+5 8’#/+/+9 Chapter 9 introduces students to the concept of human capital and treats in detail education and training investments. The chapter begins with a section on the demand for education by workers, in which a theory of human capital investment is formulated and a formal model of choice is presented. Implications of this model for both individual and aggregate (market) behavior are then derived. The second section of the chapter analyzes the relationship between education and earnings. We introduce age/earnings profiles and discuss the reasons for their convexity. Included in this section is an analysis of the differential convexity among such profiles for men and women. Next, we consider the question of whether education is a good investment. We analyze this question from both an individual and a social perspective. The major findings of the literature with respect to the individual rates of return to education are summarized, and we discuss possible biases (including selection biases) inherent in these findings. When discussing education as a social investment, we introduce both the traditional answers of the “human capitalists” and the more agnostic views of those who see education as purely a signaling device. In this context of evaluating education and training as investments, we devote a section to evaluations of government job training programs. Appendix 9A presents and explains a “cobweb” model of labor market adjustment, in which the need for educational investments slows down the supply response to changes in market demand. ! List of Major Concepts 1. Investments in human beings are part of the general category of investments. 2. Investments entail costs in the current term with returns flowing in over later periods. 3. Costs of human capital investments include out-of-pocket expenses, forgone earnings, and psychic losses. 4. Because investment returns flow in over several years, an analytical tool to convert future sums to present value is required (the concept of present value and discounting future sums is explained in some detail). 5. Human capital investments are more likely to be made by people who are not present oriented, by people who are young, in situations in which the costs of human capital investments are lower, and in situations in which the returns to these investments are larger. 6. Variations in the returns to human capital investments call forth supply responses by individuals, affecting college enrollments in predictable ways.
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Chapter 9 Investments in Human Capital: Education and Training 55 7. Because education is costly, jobs that require more education or training must pay a higher wage to attract workers (that is, to compensate them for the cost of investment). 8.
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HW_C9 - #$(01#$#23 4516/7 5(8 9 Chapter 9 introduces...

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