1 Human Capital Investment - The process of increasing the household’s holdings of human wealth either by engaging in formal or informal training or by adding household members.

2 Examples of Human Capital Investment... getting a college education teaching your son or daughter how to cook learning carpentry skills in an apprentice program sharing your life with a partner having a child reading the newspaper

3 Theory of Human Capital Investment People are investing in human capital by going to school. The returns (or benefits) of this human capital investment include higher earnings lower probability of unemployment The costs include foregone earnings while in school and out-of- pocket costs of education Brighter individuals get more education because they are more likely to see that the marginal benefits exceed the marginal costs.

4 Investment in Education What are the differences in earnings by educational attainment? Holding years of education constant, why do earnings vary by occupation? gender? race?

5 Career Choice Factors Job-an employment position obtained mainly to earn money Career-a commitment to a profession that requires continued training and offers a clear path for occupational growth.

6 Level of formal training affects financial success Training may be viewed in two main categories Technical Skills refers to specialized career training for a specific profession. General Skills are traits adaptable to most work situations. Some can be acquired at school, while others require experience. Career Choice Factors

7 PERSONAL FACTORS Aptitudes - What natural abilities, such as working well in team settings, do you possess? Interests inventories - Help you determine what gives you satisfaction. Your personality - How much structure do you like? Do you perform best in low-pressure or high-pressure working environments? Career Choice Factors

8 Average wages, all workers over 25 – 2007 Data: Current Population Survey (CPS)

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10 Developing a Career Action Plan

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12 Obtaining Employment Experience Part-time employment Volunteer work Internships Campus projects

13 Using Career Information Sources Library Media Center Online Career Services Office (SSB 350, )

Social Influences 14 City 1 Index number x salary City 2 Index number = $ buying power Cityrating.com/costofliving.asp Bestplaces.net/col (separates into categories)

15 Networking Community organizations Professional organizations Business contacts

16 Identifying Job Opportunities Job advertisements Career fairs (Career Fair February 10, 2011, 10:00am-2:00pm Union Ballroom) Employment agencies Job creation Other methods

17 Applying for Employment Resume Cover letter Interview

18 Accepting an Employment Position Work environment Factors affecting salary

19 EducationAvg. Income No high school graduation$1,573,851 High school graduate$2,342,793 Bachelor’s degree$4,281,887 Advanced degree$6,207,032 Cumulative Earning Potential Based on Degree Earned

20 Evaluating Employee Benefits Meeting employee needs Flexible work schedules Work-at-home arrangements Legal assistance Flexible spending plans Comparing benefits Market value Future value Tax impact

Tax-Equivalent Employee Benefits 21 Value of the benefit this formula calculates the tax-equivalent value of a (1-Tax Rate) non-taxable benefit. Example: Receiving a $350 tax free benefit is worth $486 of taxable benefits if you are in the 28 percent tax bracket, calculated as follows: $350 = $ =$486 A variation of this formula would give the after-tax value of a taxable benefit: Taxable value of the benefit x (1-Tax Rate) Using the above example, $486 (1-.28) = $486 (.72) = $350

22 Changing Careers

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24 The Return on Educational Investments has Grown Over Time Earnings of BA/BS recipients have grown more than inflation over the last 30+ years, with advanced degree holders capturing the largest return Earnings of high school graduates have lost ground relative to inflation. The typical bachelor’s degree recipient can expect to earn 73% more over a 40 year working life than the typical high school graduate ( ) By the age of about 33, the typical college graduate has earned enough to compensate for both paying full tuition and fee charges at the average public four-year college and foregone earnings with a high school degree ( )

25 Unemployment Rates and Earnings Differences by Education Unemployment RateEducational LevelMedian Weekly Earnings 2.0%Doctoral Degree$1, %Professional Degree$1, %Master’s degree$1, %Bachelor’s degree$1, %Associate degree$ %Some college, no degree $ %High-school graduate$ %Less than a high school diploma $453 Source: Bureau of Labor Statistics, Current Population Survey. Data are 2008 annual averages for persons age 25 and over. Earnings are for full-time wage and salary workers.

26 What are the costs? (2009 #s) University of Utah Tuition & fees for 2 semesters $5,332 Books$1,800 Foregone Earnings (2008 HS degree – men, $618 x 52) $32,136 Total Costs$38,268

27 Cost-Benefit Assessment... Do the marginal benefits of education outweigh the marginal costs at the University of Utah? Compute the present value of the annuity (PVA) for both the marginal costs and marginal benefits and compare: For the costs, use n = 5, I = 10%, FV = $38,268 For the benefits, use n=40, I = 3%, FV = $20,488 (($1, ) x 52) Marginal Costs: PVA = $233,626 Marginal Benefits: PVA = $1,544,816

28 Cost-Benefit Assessment...  In this instance, the benefits are clearly greater than the costs, but this may be an underestimate of the actual net benefits… Why? May understate income growth more than college costs because of the difference in the time horizon. Does not factor in the value of the retirement benefits that are likely to accrue because of a better job. Does not factor in other fringe benefits that are typically associated with a better job (e.g., health insurance, disability insurance, child care subsidies).

29 Are Gains in Earnings and Related Financial Factors the Only Benefits of a College Education? Other benefits that accrue to the individual or household… greater efficiency in household production activities (e.g., shopping behavior, family finances, child development) greater non-pecuniary benefits of employment (e.g., occupations where you set your own hours, work at home, do more challenging tasks, reduce health risks) better relationships in general; especially better marriage rltnshps

30 Are Gains in Earnings the Only Benefits of a College Education? Other benefits that accrue to society (i.e., social benefits) more informed voters and more likely to participate in the political process additional earnings raise the tax base less likely to engage in illegal activities

31 Source: U.S. Census Bureau. (2002). Voting and Registration in the Election of November Reported Voting Rates by Age and Education Level, 2000

32 Source: Harlow, C.W. (2003). Education and Correctional Populations. Bureau of Justice Statistics, Department of Justice. NCJ Incarceration Rates by Education Level, 1997

33 If education is such a good investment, why doesn’t everyone get a Ph.D.? Situations where the opportunity costs are exceptionally high. Situations where the out-of-pocket costs are prohibitively high (e.g., low-income households). Situations where other, non-pecuniary costs are quite high (e.g., time needed to study). Situations where the marginal benefits are exceptionally low.

34 Mean Annual Earnings by Occupation 2006 Data: BLS

35 Why do earnings vary by occupation, controlling for years of education? Cost-Benefit Differentials Recognition of differential educational investment (e.g., acquiring economic knowledge may be easier than acquiring chemistry knowledge) Recognition that some occupations confer enjoyment above and beyond salary while others do not. Recognition that there may be risks to the employee that one needs to compensate for (e.g., health considerations Recognition that some jobs require more hours of work than others. Recognition of differentials in on-the-job training.