Problem Set: Human Capital Investments
The growth in the high-tech sector increases the demand for college graduates. This results in an increase in their expected earnings.
a) Carefully explain how this situation would affect the cost-benefit calculation of going to college and illustrate with an appropriate diagram:
b) Would you expect women or men to be more affected by this change? Why?
Judy, a college senior, receives two job offers: Employer 1 pays considerably more initially than Employer 2. However, Judy is told that if she stays with Employer 2, she can expect her salary to increase quite a bit each year; Employer 1 says if she remains at the firm, she can expect her salary to stay at about the same level.
a) Can human capital theory of on-the-job training provide a reason why the earnings profiles of these offers differ in this way? Explain and illustrate with a diagram.
b) What factors might affect Judy’s decision to prefer one job over the other? [Note: the earnings profile shows the earnings of an individual at various ages or experience levels. The question relates to Judy’s earnings profiles after completing college.]
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