test 3

Time preferences (discounting)

Chapter 9 -A dollar today is worth less than a dollar tomorrow. The idea that you could invest a dollar today and invest it or spend it. if you can invest it at 5% then you need to discount by 5% the present value of the future dollar

Direct vs indirect costs of human capital

Chapter 9 -The direct costs are actual expenditures of tuition and buying books, while the indirect costs are the foregone earnings and information losses that go with getting an education.

Internal rate of return

Chapter 9 -The internal rate of return is a metric used in financial analysis to estimate the profitability of potential investments. The internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis.

Calculating present value

Chapter 9 -Using the present value formula, the calculation is $2,200 (FV) / (1 +. 03)^1. PV = $2,135.92, or the minimum amount that you would need to be paid today to have $2,200 one year from now.

Job search costs

Higher job search costs tend to lengthen the time of unemployment. High job search costs can make an employer stay in a lower wage job because the costs of looking for another job are high

Efficiency gains from migrations

In some industries production becomes cheaper because immigrants accept lower wages. Frees some women up to pass child rearing duties to someone else; they can work or pursue education.

Demand, supply, equilibrium in the human capital market

Just like other markets, when the returns of getting college degree are high and more people flood into college the returns fall. Downwards pressure on wages. Current returns are also an unreliable estimate of future returns

Quantity and wage differences between monopsonistic and perf. comp.

pg 139-140 - In perfect competition the only decision to make is the number of workers to hire because firms can acquire all the labor they need at the going rate. In monopsonistic markets firms have more discresion in wages.

Differences in human capital investment

1. Average earnings of full-time workers rises with the level of education 2. The most rapid increase in earnings occurs early, thus giving a concave shape too the age profiles of both men and women. 3. education related earnings differences later in a workers life are greater than those early in their lives Formal education vs informal (on the job) education from the workers perspective, training depresses wages during the learning period(if they share in the cost) but allows them to rise with enhanced productivity afterwards. Returns are greater when post investment period is longer(as with other investments)

Employer training during recessions

158 Employees that are least likely to be layed off during a recession are those who have the most training and longest job tenure. Output per labor hour falls inn the early stages of a recession and rises during the early stages of a recovery

Personal gains from migration

336-350

Determinants of migration

Another main factor affecting the migration decision is age. A younger person has a longer time period over which to reap the benefits of migration than an older person. As we discussed in the section on labor market frictions, younger people may also have lower costs of migration due to fewer social connections or the absence of spouse and children who also face significant migration costs. Education also affects the migration investment decision. All else constant, the returns to immigration increase with education. Let's be clear that this does not mean that migration is not worthwhile for individuals with lower education levels. The level of illegal immigration to the US from Mexico suggests that many low-skill workers still believe immigration (even illegal immigration for which you must risk your life in a dangerous border-crossing trek) is a good investment. Still, the benefits of immigration are even higher with education. This leads to another factor, the opportunity cost of migration. The better the job opportunities in the home country, the less likely is a person to migrate. This helps to explain the desire of low-skill workers to cross the border illegally. The relative improvement between low-skill work in Mexico and low-skill work in the US makes immigration a good investment for many people. Finally, distance also plays a role, mainly by affecting the cost of immigration. Generally speaking, the greater the distance involved, the greater the cost of migration. The cost of any future return trips is similarly increased. If a rational decision-maker considers the present value of all expected costs and benefits, these higher costs make immigration less likely.

Criticisms of HC Theory: Ability problem

Are people with greater ability more likely to go to college, or are people more likely to get smart because they go to college

Different costs of migration

As costs of migration rise there is less incentive to migrate. The are actual costs, such as transportation, psychic, such as emotional response to distance from friends and families

Assumptions in the competitive labor market

Chapter 5 -Finding where MRP=ME -Employers can hire all the labor they need at the going wage rate and employers only decide the number of workers they want to hire.

Elasticity and labor mobility

Chapter 5 Labor mobility is impacted by both monetary and non-monetary factors. Monetary factors include printing resumes, buying cloths for interviewing, hiring movers. Non-monetary factors include expenditure of timer completing applications and interviews, giving up valued non-wage benefits of tens current job, specific job duties, employer location, opportunities to socialize. Assuming that worker mobility is costly has profound theoretical implications on the shape of the labor supply curve. Instead of being horizontal, as assumed earlier, the supply of labor curve to firms becomes upwards sloping when employee mobility is assumed to be costly. The higher the workers mobility costs the steeper the labor supply curve

Law of one price

Chapter 5 workers who are of equal skill level within occupations will receive the same wage. Rests on the assumption that workers can move from employer to employer without delay and without cost. This assumption is not always the true.

Profit maximization hiring rule

Chapter 5 - Hire as long as an added worker's marginal revenue product is greater than his or her marginal expense. Hiring will stop when marginal revenue equals marginal expense

Competitive firm vs monopsonistic firm

Chapter 5 - Monopsonistic labor markets are markets when one firm is the only buyer of labor. A coal mine in an isolated small town in West Virginia, or a pineapple plantation on a Hawaiian island. Must attract labor from out of town because their are no competing firms in town that they can pull from.

Assumptions in the monopsonistic labor market

Chapter 5- The wage paid to workers is decided not given, and it is less than the MRP, but they do not have no constraints on wages.

Basic models of human capital

Chapter 9 - Investment in human capital entails costs like any investment. These costs can be broken down into three categories: 1. Direct expenses (Out of pocket) - tuition, books 2. Forgone earnings - earnings lost because it is difficult to work during education 3. Psychic losses - Losses because learning can be difficult and tedious

Women and the acquisition of human capital

PG 301 - The earnings of women who work full-time year-round are lower than those of men of equivalent age and education, and that women's earnings within each educational group rise less steeply with age. Women are less likely to be employed and/or employed full time in the labor force. This gives them less time to recoup human capital investments. This lower participation is probably due mostly to child-rearing and household duties. Women receive less OTJ training

Occupational mobility

PG 328 - If the benefits of changing jobs are greater than the costs we expect people to be willing to change jobs. Mobility can be costly The greater the net benefits from changing jobs the greater the utility one will get changing jobs

Generalizations of human capital investments (there are a lot)

People attend college when they feel they are better off doing so. There are basically two options: stat working immediately after high school or make an investment in education and increase your skills. Present-oriented people are less likely to go to college than forward-looking people. Most college students will be young. College attendance will decrease if costs of college rise. College attendance will increase if the gap between the earnings of college graduates and high school graduates widens.

Criticisms of HC Theory: Investment or consumption

Students who attend college because they enjoy the lifestyle and freedom are treating college as consumption

Criticisms of HC Theory: Screening hypothesis

This suggests that schools do not directly provide knowledge or skills necessary for work, but that schools require students to jump through certain hoops and accomplish certain tasks that reveal their inherent abilities. Those who are capable and can learn to do new things quickly excel in school. The same inherent abilities that lead them to succeed in school signal great potential in the world of employment.

Calculating net present value

Value of the promise today = $ Promised in Future / Discount factor 200,000/1.05 Example: Benefit today of receiving $200,000 in a year's time given a 5% discount rate is $190,476 ($200,000 divided by 1.05)

Marginal wage cost for monopsonistic firm

determined by their MRP and the labor supply curve they face, and in our simple model, both curves were given to the firm and thus were outside its control. Firms must make decisions that allow them to remain competitive in their product markets.

Specific training (human capital)

employers have stronger incentive to invest inn specific training over general training because it can only be used within their own firm and does not make the worker more attractive to other firms. returns are higher on this investment

Credentials

employers rely on signals so they can hire people who are most likely to require little training. Some jobs require college degree. this imposes costs on high school graduates can also impose costs on employers who rely on degree even though degree does not guarantee success

Minimum wage impacts for monopsony

pg 140-141 For a monopsonistic firm a mandated wage can simultaneously increase the average cost of labored reduces its ME. It is the decrease marginal expense that induces the firm to expand output and employment in the short run Even though wages have risen desired employment rises. it is the decrease in marginal expense that induces the firm to expand output and employment in the short run. If it is set above a certain level in could cause desired employment to fall

Categories of quasi-fixed costs

pg 148 Employee Benefits and Labor investments

Quasi fixed costs (firm and employee side)

pg 148 These are costs associated with the number of workers hired by a firm. Investments and employee benefits. Labor investments - cost of sourcing potential employees and wining and dining them. Also orienting the employee and getting them on payroll. Also the costs associated with terminating an employee which should be included in the cost of hiring them pg 149 Employee Benefits nonwage compensation such as medical and life insurance, retirement plans, vacation days, social security payments. Also workers compensation.

Employment/Hours trade off

pg 151 - Some firms can have fewer workers work more hours, or have more workers work fewer hours. Some of the labor costs are on a per worker base and some are on a per hour base. Employers will compare the costs associated with more workers vs more hours and if the cost of one is higher tan the other they may choose to use the one that costs less to accomplish their goal

General training (human capital)

pg 155 Can be a risky investment for an employer. If mobility costs are not very great employers will be less likely to do general training. Recent research finds that firms DO invest in general training, which may suggest that mobility costs are high. Also shows the transferability of skills might be low

Wages/productivity before and after training

pg 156

Internal labor markets

pg 161 - hiring within the firm for promotions so that the quality of the worker is known when the hiring decision is made. They also don't need to train the employer as much because they have experience. Also good because if employees think they have an inside track o upper level positions it will make them more loyal and productive.

Decision rule for human capital investments

pg 287 - Humans are expected to be utlity maximizer who take into consideration the cost of education and the present value of future flows that will be unlocked by the investment in education

Moving as an investment in HC

pg 335 - Highest returns come from people who migrate after going through job-search process and have an offer. People without offer still increase earnings, but not as much as those with an offer already. People who migrate for family reasons actually saw decreased earnings. international Immigration returns results are difficult to get because of lack of data but those who immigrated from Mexico to US earned significantly more.. Immigrants earn substantially less than native counterparts. each succeeding cohort of immigrants have done worse than their predecessor. third, relative earnings of immigrants rise over time and rise faster than natives, especially within first 10 years after immigration

Calculating net present value of migration

pg 336

Geographic mobility

prediction is that migratory flow from areas of relatively poor earnings possibilities to places where opportunities are better. The pull of good opportunities is stronger than the push of limited opportunity

Internal Rate of Return

the discount rate that makes the NPV of an investment zero