• Nem Talált Eredményt

ECONOMICS OF EDUCATION

N/A
N/A
Protected

Academic year: 2022

Ossza meg "ECONOMICS OF EDUCATION"

Copied!
38
0
0

Teljes szövegt

(1)

ECONOMICS OF EDUCATION

(2)

ECONOMICS OF EDUCATION

Sponsored by a Grant TÁMOP-4.1.2-08/2/A/KMR-2009-0041 Course Material Developed by Department of Economics,

Faculty of Social Sciences, Eötvös Loránd University Budapest (ELTE) Department of Economics, Eötvös Loránd University Budapest

Institute of Economics, Hungarian Academy of Sciences Balassi Kiadó, Budapest

(3)
(4)

ECONOMICS OF EDUCATION

Author: Júlia Varga

Supervised by Júlia Varga June 2011

ELTE Faculty of Social Sciences, Department of Economics

(5)

ECONOMICS OF EDUCATION

Week 1

The economic value of education Human capital model

Júlia Varga

(6)

”The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labour, and which, though it costs a certain expense, repays the expense with a profit.”

Adam Smith, 1776 The Wealth of Nations

Human capital in the early

economic thought

(7)

”There is no doubt about the answer to the very controversial question of whether the immaterial goods (services) of mankind form a part of national wealth or not. Since the more highly schooled nation, equipped with the same material goods, creates a much larger income than an uneducated people, and since this higher schooling can only be obtained through an educational process which requires a larger consumption of material goods, the more educated nation also possesses a larger capital, the returns of which are expressed in the larger product of its labor.”

Von Thünen 1875

Human capital in the early

economic thought

(8)

• Theodor W. Shultz : The Economic Value of Education, 1963.

• Gary S. Becker: Human Capital, 1964.

• Jacob Mincer: Schooling, Experience, and Earnings, 1962

Theorizing human capital

formation

(9)

Human capital is individual’s productive skills, talents and knowledge.

Education and training raise the

productivity of workers by imparting useful knowledge and skills.

Education involve currents costs but future returns.

Human capital

(10)

Hungary, 1989, private sector

Source: Based on data of Hungarian Wage-tariff Survey

Age-earnings profiles

secondary vocational

age

alt szm

kf ff

15 25 35 45 55

5000 10000 15000 20000 25000

5000 10000 15000 20000 25000

vocational secondy

lower secondary

(11)

1. The absolute level of earnings at any point in time is higher for people with a higher level of schooling.

kor

alt szm

kf ff

15 25 35 45 55

5000 10000 15000 20000 25000

5000 10000 15000 20000 25000

Main characteristics of stylized

age-earnings profiles

(12)

2. Age-earnings profiles are concave in age. That is, earnings increase with age at a decreasing rate, up to a maximum and then flatten or even decline.

kor

alt szm

kf ff

15 25 35 45 55

5000 10000 15000 20000 25000

5000 10000 15000 20000 25000

Main characteristics of stylized

age-earnings profiles

(13)

3. The slope of the profile is positively correlated with level of schooling. The maximum level of earnings tend to be reached at a later age for people with a

higher level of education.

kor

alt szm

kf ff

15 25 35 45 55

5000 10000 15000 20000 25000

5000 10000 15000 20000 25000

Main characteristics of stylized

age-earnings profiles

(14)

4. The earnings differentials for differently educated people tend to increase with the level of education, that is at any given age, the differential earnings associated with a given differential in years of education increases with the

absolute level of schooling.

kor

alt szm

kf ff

15 25 35 45 55

5000 10000 15000 20000 25000

5000 10000 15000 20000 25000

Main characteristics of stylized

age-earnings profiles

(15)

MP=W

Investment in education

Higher

productivity

Higher earnings

Human capital theory

(16)

• MP=W

• the individual is a benefit maximizer

• the individual is well informed

• he/she pay the costs of education

Human capital model – base model

(17)

Human capital model – base model Benefit = lifetime income gain

Benefit W

time n

WS

WS–1

(18)

1. Direct costs (tuition fee, cost of books and supplies, other out of pocket costs etc.) C1. 2. Indirect costs: earnings foregone C2 = Ws–1.

Human capital model – base model

Costs

(19)

C1

Benefit

W

time n

WS

WS–1 C2

Human capital model – base model

Costs and benefits

(20)

t

t s

s n

t

i

W W

) 1

(

)

(

1

1

• Present income is more valuable than future income

(it may be invested and earn additional income).

• Incomes in future periods must be discounted.

Present value of benefit

(21)

t

t s

n

t

i

C W

) 1

(

)

(

1 1

1

Present value of costs

(22)

t

t s

n

t n

t

t t s

s

i C W

i W NCV W

Max

) 1

(

) (

) 1

(

) . (

1 1

1 1

1

 

 

Education investment decision

(23)

Market interest rate or rate of time preference?

Rate of time preference: the rate at which the individual is willing to swap present

consumption goods for future consumption goods.

The interest (discount) rate

(24)

1. Rate of time preference < market rate of interest

The individual values present goods less highly than the market i = market rate of interest

(it is the real opportunity cost since the individual can always earn at least that rate of interest)

2. Rate of time preference > market rate of interest

The individual values present goods more highly than the market i = rate of time preference

Discount rate

(25)

t

t s

n

t n

t

t

t s

s

r C W

r W W

) 1

(

) (

) 1

(

)

(

1 1

1 1

1

 

Internal rate of return = r

(26)

Indifference curves between current and future consumptions

slope  rate of time preference

Current consumption Future consumption

0 a

Production possibilities

schedule (the rate at which the

individual can transform current consumption into future consumption through investment in human capital slope  r

Individual investment decisions

(no loans for human capital investment)

(27)

Current consumption Future consumption

0 a

n

e

f

Investment in human capital: ae Current consumption: e0

Future consumption: 0f

Individual investment decisions

(no loans for human capital investment)

(28)

Individual investment decision with borrowing/lending possibility

Current consumption Future consumption

0

Current income: 0a

Market rate of interest: pk

p b k

q l j

a

Investment in human capital: aq Borrow: ql

Current consumption: 0l Future consumption: 0j

(29)

Individual investment decision with borrowing/lending possibility

Current consumption Future consumption

0

Current income: 0a Market rate of interest: cd c

d i

i

g a h

Investment in human capital ag Lending gh

Current consumption: 0h Future consumption: 0i

(30)

1. Benefits are different for different people.

2. Costs are different for different people

(earnings foregone, direct costs, expected time in which the yield of the human capital investment can be collected).

3. Rate of time preference is different for different people  different discount rates.

Why do people learn for different time?

(31)

Current consumption Future consumption

„able”

less able”

Abilities are different

Benefits are different

(32)

Costs are different – different earnings foregone

Benefit/Costs

time C2

n WS

WS-1

WS–1

(33)

Costs are different – different direct costs

C1

Benefit/Costs

time

n

WS

WS–1

(34)

Costs are different – different life spans

Benefit/Costs

time n

WS

WS-1

(35)

Current consumption Future consumption

Rate of time preference depends on initial income

Small current income – ‘i‘ is large

Large current income – ’i’ is small

Rate of time preference is different

(36)

Human capital is an illiquid asset (cannot be separated from its owner)

– cannot be sold or gifted away,

– the life span of human capital depends on the life span of its owner,

– the individual’s own time is required for acquiring human capital.

High risk and uncertainty

Risk – the probability distribution of chances is known.

Uncertainty – the probability distribution of chances is not known.

Peculiarities of human capital

(37)

Human capital is an illiquid asset.

May not be held as collateral against risk and uncertainty – financial institutions are less likely to lend for investment in human capital.

Peculiarities of human capital

(38)

t

t k s

s

k n k

t n

t

t

t j s s

m

j

j

u i

C W

P u

i

W W

P

) ' 1

(

] ) (

[ )

1 (

] ) (

[ 1

1 1

1 1

1 1

 

 

Risk and uncertainty

Hivatkozások

KAPCSOLÓDÓ DOKUMENTUMOK

The main result has demonstrated that an increase in the higher education level is connected with dropping the modal share of driving in cities more than any change in other

The many narrow tubes together form a large heat transport surface; much larger than a double pipe exchanger with the same overall cross section area for the inner tube flow

This also implies that the qualitative behavior of a model with backward bifurcation is more complicated than that of a model which undergoes forward bifurcation at R 0 = 1, since

This pilot investigation aims the public administration higher education students of the National University of Public Service since their competencies as both users

This could incentivise all Western Balkan countries, including those candidates that have not yet started mem- bership negotiations (Macedonia and Albania) and those waiting

In this paper, we identified groups of people who are affected more by the weekly rhythm of time, since our aim was to find out more about vulnerable groups. Employees—and

In this section, I describe how some of these factors have evolved in Hungarian higher education since the change of the regime (1990), including the size of institutions,

The problem of common goods or common-pool resources (CPRs) is a huge topic within environmental and ecological economics since it has significant explanatory