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ECON303: Labor Economics

  • Unit 6: Human Capital Investments  

    The theory of compensating wage differentials (studied in the previous unit) explains differences in wages as differences in job characteristics.  The theory of human capital (presented in this unit) explains differences in wages as differences in the skills and abilities of workers.  Note that "skills and abilities" are acquired by the worker through education, job training, and so forth—“investments” he or she makes with the hope that the returns will be higher in the future.  Unlike the models studied so far, the models presented in this section do not occur "at a given point in time," but are seen from a lifetime perspective.

    Unit 6 Time Advisory

    This unit should take you 12 hours to complete.

    ☐    Subunit 6.1-6.8: 6-8 hours

    ☐    Subunit 6.9: 3-4 hours

    Unit6 Learning Outcomes

    Upon successful completion of this unit, students will be able to:

    • Mathematically and analytically estimate the economics of education.

    • Use present value calculations to determine whether it is beneficial for an individual to invest in human capital

    • Identify other factors that influence investing in human capital.

    • Identify various aspects of the human capital production function.

    • Analyze the return to schooling model
  • 6.1 Introduction  

    • Lecture: SUNY-Oswego: Professor John Kane's Lecture notes on Introduction to Labor Economics: “Economics of Education (Chapter 9)”

      Link: SUNY-Oswego:  Professor John Kane's Lecture notes on Introduction to Labor Economics:Economics of Education (Chapter 9)” (HTML, Adobe Flash, or Powerpoint)
       
      Instructions:  Please click on chapter 9 from the Table of Contents.  Note that the material is presented in three formats: Single document HTML format, narrated PowerPoint, and PowerPoint Slideshow.  Please read the HTML text of this chapter in entirety for an introduction to the topic of Human Capital.  If the audio does not work at first, refresh your browser.
       
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    • Reading: New York University: Professor Matthew Wiswall’s “Lecture Notes on Labor Economics”

      Link: New York University: Professor Matthew Wiswall's “Lecture Notes on Labor Economics” (PDF)
       
      Instructions: Please click on “Lecture Notes” to access the pdf file with the lecture notes.  Scroll down to page 78, section 9 ("Human Capital") and read the section all the way up to page 97, completing section 9.10.2.  You can skip section 9.10.3 and resume reading from section 9.10.4 on page 100.  This reading covers subunits 6.2-6.8.
       
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  • 6.1.1 The Economics of Education  

    Note: This subunit is covered by the reading assigned under Unit 6.1.

  • 6.1.2 The Cobweb Model of Educational Attainment  

    Note: This subunit is covered by the reading assigned under Unit 6.1.

  • 6.2 Investing in Human Capital  

  • 6.2.1 Human Capital and Productivity  

  • 6.2.2 A Model of Human Capital Investments  

  • 6.2.2.1 Present Value Calculations  

  • 6.2.2.2 Foregone Earnings and College Attendance  

  • 6.2.2.3 Why Does Schooling Vary?  

  • 6.3 Life Cycle Human Capital Investment  

  • 6.4 Human Capital Production Functions  

  • 6.5 Complementarities in Human Capital Production  

  • 6.6 Education as a Signal  

  • 6.7 Non-Schooling Human Capital  

  • 6.8 On-the-job Training  

  • 6.9 Estimating the Returns to Education  

    • Reading: The Federal Reserve Bank of Minneapolis: University of Western Ontario: Lance Lochner's “The Private Returns to Human Capital”

      Link: The Federal Reserve Bank of Minneapolis: University of Western Ontario: Lance Lochner's “The Private Returns to Human Capital” (PDF and Windows Media Video)
       
      Instructions:  Please click on the link to see the main page of the conference in which this paper was presented.  Please click on the first topic presented, titled "The Private Returns to Human Capital," to access the slides; listen to the narration by clicking on "Video."  A helpful hint: opening a smaller window for the video while having a full screen window for the slides will make it easier for you to work through the material.
       
      Note: This video presents empirical evidence of returns to schooling in the US from 1940-2000.  We will study the theory behind this topic next.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.

    • Reading: The New York Times: Anna Bernasek's “What's the Return on Education?”

      Link: The New York Times: Anna Bernasek's “What's the Return on Education?” (HTML)
       
      Instructions:  Please click on the link to read this article (originally published on December 11, 2005), which summarizes the importance of returns to education.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.

    • Reading: New York University: Professor Matthew Wiswall’s “Lecture Notes on Labor Economics”

      Link: New York University: Professor Matthew Wiswall's “Lecture Notes on Labor Economics” (PDF)
       
      Instructions: Please click on “Lecture Notes” to access the pdf file with the lecture notes.  Scroll down to page 102, section 10 (“Topics in Applied Labor Economics: Estimating the ‘Return’ to Schooling”) and read the section, all the way up to page

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        Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.