Human capital V

Another type of cost of attending college is the opportunity cost of the earnings from work received by the high school graduate that the college student could have been making. The size of this cost depends on the earnings that a high school graduate is able to make and whether or not the person in college works full-time or part-time while in school. The opportunity cost of attending college may extend several years beyond age 22 if the college graduate begins work at a lower salary than what the high school graduate is earning at age 22. This might well be the case since the earning of the high school graduate will have benefited from four years of experience and training.

Human capital IV

The benefits and costs of attending college are readily identifiable. The direct or out of pocket costs of going to college include payment for tuition, books and other fees. The cost of room and board are not counted since these are incurred even if the person is not enrolled in school. The amount of the direct costs depends on whether the individual attends a state- supported school or a private school. In addition whether he or she obtains a scholarship or tuition waiver.

Human capital III

To make the discussion more attractive, attention focuses on one particular type of human capital investment - whether or not to attend a four-year university or college. The principles we point to here apply to investment in all types of education and training.

Should an individual attend college? From a human capital point of view the answer depends on the monetary benefits relative to the costs. There are two different strategies to the precise nature of these benefits and costs. Strategy one is to finish high school and then begin full time work at age 18 working continuously until age 65 which results in the age/earnings. The second strategy is to attend college for four years from age 18 to 21 then work continuously from age 22 to retirement at age 65.

Human capital II

When is an additional year of education a good investment? The quotation from Adam Smith provides the answer, “whenever the increased benefits both pay back the initial costs and yield a rate of return at least as high as alternative investments of one’s time and money”. A major contribution of the human capital theory developed by Becker and others is to take this insight of Adam Smith and show how it can be used to measure the private and social rate of return not only to education but also to numerous other labor market activities.

Human capital I

The types of human capital investments that have received the most attention from labor economists are education and training. While schooling is partly a consumption good for many people (that is individuals pursue an education for the pleasure and satisfaction of experience) it is also treated by most individuals as a clear investment in their future. Every college student for example is aware of the costs of pursuing a college degree. These include the direct costs of tuition, books and other educational expenses and the indirect or opportunity costs in the form of forgone earnings from work that are sacrificed to attend school. Counter balanced against these costs are the anticipated benefits of increased earnings, more attractive employment opportunities and higher status and social prestige.

Is education a good investment II

The answer to this question is more complicated because it requires a comparison of both the increased earnings from additional years of education and the additional costs. Although a college education still opens the way to a higher paying job for most people the return to this investment is being squeezed both by the rising costs of obtaining the degree and by the relatively smaller wage advantage that a college degree now commands in the market.

Is education a good investment I

Is there any truth to the old adage, ‘If you want to get ahead then get an education?’. Many graduates now have joined the unemployment ranks and would have a knee jerk response to this economy.

Is education a good investment? At first glance it would certainly seem so since the earnings a person can expect to obtain in the labor market increase rather markedly with higher levels of education.