Human capital investment .ppt @ bec doms
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Human capital investment .ppt @ bec doms

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Human capital investment .ppt @ bec doms

Human capital investment .ppt @ bec doms

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Human capital investment .ppt @ bec doms Human capital investment .ppt @ bec doms Presentation Transcript

  • 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. 1
  • 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
    2
  • 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.
    3 View slide
  • 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?
    4 View slide
  • 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.
    5
  • 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
    • 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 7
  • Average wages, all workers over 25 – 2007 8 Data: Current Population Survey (CPS) 2008 http://pubdb3.census.gov/macro/032008/perinc/new03_001.htm
  • 9 Source: www.collegeboard.com
  • 10 Developing a Career Action Plan
  • 11
  • Obtaining Employment Experience
    • Part-time employment
    • Volunteer work
    • Internships
    • Campus projects
    12
  • Using Career Information Sources
    • Library
    • Media Center
    • Online
    • Career Services Office (SSB 350, 581-6786)
    13
  • 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) If Omaha, Nebraska has an index number of 93.3 and Chicago has an index number of 123, a person moving from Omaha making $30,000 annually would need to make $39,550 in Chicago to be making the same real salary: 123 x $30,000 93.3 = $39,550
  • Networking
    • Community organizations
    • Professional organizations
    • Business contacts
    15
  • Identifying Job Opportunities
    • Job advertisements
    • Career fairs (Career Fair August 24, 2011, 10:00am-2:00pm Union Ballroom)
    • Employment agencies
    • Job creation
    • Other methods
    16
  • Applying for Employment
    • Resume
    • Cover letter
    • Interview
    17
  • Accepting an Employment Position
    • Work environment
    • Factors affecting salary
    18
  • 19 Cumulative Earning Potential Based on Degree Earned Education Avg. 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
  • 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
    20
  • 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 = $350 1-.28 .72 =$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
  • Changing Careers 22
  • 23
  • 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 ( http://tsp.convio.net/site/PageServer?pagename=education_pays )
    • 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 ( http://tsp.convio.net/site/PageServer?pagename=education_pays )
    24
  • 25 Unemployment Rates and Earnings Differences by Education Source: Bureau of Labor Statistics, Current Population Survey. http://www.bls.gov/emp/ep_chart_001.htm Data are 2010 annual averages for persons age 25 and over. Earnings are for full-time wage and salary workers. Unemployment Rate Educational Level Median Weekly Earnings 1.9% Doctoral Degree $1,550 2.4% Professional Degree $1,610 4.0% Master’s degree $1,272 5.4% Bachelor’s degree $1,038 7.0% Associate degree $767 9.2% Some college, no degree $712 10.3% High-school graduate $626 14.9% Less than a high school diploma $444
  • 26 Unemployment Rates and Earnings Differences by Education Source: Bureau of Labor Statistics, Current Population Survey. http://www.bls.gov/emp/ep_chart_001.htm Data are 2008 annual averages for persons age 25 and over. Earnings are for full-time wage and salary workers. Unemployment Rate Educational Level Median Weekly Earnings 2.0% Doctoral Degree $1,561 1.7% Professional Degree $1,531 2.4% Master’s degree $1,233 2.8% Bachelor’s degree $1,012 3.7% Associate degree $757 5.1% Some college, no degree $699 5.7% High-school graduate $618 9.0% Less than a high school diploma $453
  • 27 Unemployment Rates and Earnings Differences by Education Source: Bureau of Labor Statistics, Current Population Survey. http://www.bls.gov/emp/ep_chart_001.htm Data are 2010 compared to 2008 annual averages for persons age 25 and over. Earnings are for full-time wage and salary workers. Unemployment Rate Educational Level Median Weekly Earnings 1.9% ( .1%) Doctoral Degree $1,550 ( $11) 2.4% ( .7%) Professional Degree $1,610 ( $79) 4.0% ( 1.6%) Master’s degree $1,272 ( $39) 5.4% ( 2.6%) Bachelor’s degree $1,038 ( $26) 7.0% ( 3.3%) Associate degree $767 ( $10) 9.2% ( 3.1%) Some college, no degree $712 ( $13) 10.3% ( 4.6%) High-school graduate $626 ( $8) 14.9% ( 5.9%) Less than a high school diploma $444 ( $9)
  • What are the costs? (2011 #s) 28 University of Utah Tuition & fees for 2 semesters $7,768 Books $1,800 Foregone Earnings (2010 HS degree – men, $626 x 52) $32,552 Total Costs $42,120
  • 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, r = 10%, FV = $42,120
        • For the benefits, use n=40, r = 3%, FV = $21,424 (($1,038 - 626) x 52)
    • Marginal Costs :
      • PVA = $257,143
    • Marginal Benefits :
      • PVA = $1,615,391
    29
  • 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).
    30
  • 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
    31
  • 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
    32
  • 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.
    33
  • 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.
    34