Is Education a Good Investment? Economists refer to the effect of education on earnings as the result of investing in human capital. Human capital is the skills and knowledge that people possess, enabling them to do their work. Increasing human capital makes workers more productive. The table below shows information on the relationship between years of education completed and the annual median income in the United States. Use this information and your knowledge of economics to answer the question below.

Income of Men vs. Women by Education Source: Digest of Education Statistics (2011): http://nces.ed.gov/programs/digest/

1. Describe the relationship between education and income 1. Describe the relationship between education and income. Does education pay? The more education a person gets, the more they earn.

2. What is an Associate’s degree? Bachelor’s degree? Master’s degree? Associate’s Degree- 2 years (Community College) Bachelor’s Degree- 4 years Master’s Degree- 6 years total; 2 years beyond bachelor’s degree

Yes, at least usually/ on average $63,740 – $40,060 = $23,680 per year 3. Is a bachelor’s degree a good investment? How much more does a man with a bachelor’s degree make compared to a man with a high school diploma? Assuming it costs $15,000 per year to get a bachelor’s degree how much does the degree cost? How many years would it take to pay back the cost of a bachelor’s degree based on the extra income earned from that degree? Yes, at least usually/ on average $63,740 – $40,060 = $23,680 per year $15,000 per year x 4 years = $60,000 $60,000 ÷ $23,680 = 2.53 years to make back the cost of school

More knowledge, skills, training 4. What are some reasons why individuals with additional education earn more income than those without additional income? Is this fair? Why or why not? More knowledge, skills, training As you get more education the supply of people with that specialized knowledge decreases; when supply decreases prices/wages increase Diploma proves they can accomplish a difficult goal Many higher paying jobs now require a bachelor’s degree to even apply for a job Attending college allows you to make social connections that can help in landing a first job, finding out about job openings, and getting promotions

Income of Men vs. Women

Income of Men vs. Women

Income of Men vs. Women

Income of Men vs. Women

Income of Men vs. Women

5. What are some reasons that men’s median incomes are higher than women’s at all levels of education? Discrimination- Women prevented from applying or pushed into areas in a business that pay less. This is illegal and women can sue for gender discrimination. Tradition- Women tend to enter occupations that pay less; Examples- Nursing, Education (Pre, Elementary, HS), Secretary, Cashier, Bank teller. Biology- Women have children; they leave and then re-enter the workforce; this puts them at a disadvantage for promotions and pay increases.

Income of Men vs. Women

6. According to the chart above what has happened to the gap between men and women’s earnings over time? Why do you think this has occurred? It’s gotten smaller! Less employment discrimination. More women are entering higher paying occupations formerly dominated by men. Women are waiting longer to have children and are having fewer children. More accommodations for working women in the workforce; Ex: On-Site child care, paid and longer maternity leave, job sharing with another worker, privacy areas at work for breast-feeding mothers, ability to work from home. Women’s increases in education have been rising faster than men’s.

The opportunity cost is too high 7. If investing in human capital (more education) leads to more income, why doesn’t everyone attend five or more years of college (think about the opportunity cost of attending college)? The opportunity cost is too high Most give up the opportunity to work as much as they could while they are in college. You give up the opportunity to buy things like a nice car, clothes, your own apartment. You give up the opportunity to do as many social activities, i.e. parties, dating.