Exercises: Education, Skills, and Earnings

The table shows illustrative (not official) data.

(a) Which level has the highest earnings and the lowest unemployment?

(b) Calculate yearly earnings (52 weeks) for a worker with a high school diploma.

Economists say that education and training build human capital. Define human capital in your own words and give two examples of skills. Then explain in two or three sentences why a certified welder usually earns more than a new worker with no training.

Sofia is considering a medical-assistant certificate program. Tuition is $\$6{,}000$ and books and supplies cost $\$500$. After she finishes, she expects to earn $\$3$ more per hour than now, working 2,000 hours a year.

(a) What is the total direct cost of the program?

(b) How much more will she earn in a year?

Ethan is deciding whether to attend a 2-year community college program full time.

• Tuition is $\$4{,}000$ per year.

• Books are $\$600$ per year.

• If he did not attend, he would work full time and earn $\$28{,}000$ per year.

• After graduating, he expects to earn $\$12{,}000$ more per year than he would without the degree.

(a) Calculate the total cost of the program, including the earnings he gives up (the opportunity cost).

(b) How many years of working after graduation will it take for the extra earnings to cover that cost?

(c) Name one benefit of the degree that this calculation leaves out.

Use these illustrative data: workers with a high school diploma earn about $\$900$ per week, and workers with a bachelor's degree earn about $\$1{,}500$ per week. The unemployment rates are 4.5% and 2.5%, respectively.

(a) Calculate the yearly (52-week) earnings difference between the two groups.

(b) Calculate the difference over a 40-year career.

(c) In a group of 1,000 workers from each level, how many would be unemployed?

(d) Explain why the (b) figure may overstate or understate what a particular student would gain.

In a hypothetical occupation, men earn a median of $\$60{,}000$ a year, and women earn 82 cents for every dollar men earn.

(a) Calculate the women's median pay and the dollar gap.

(b) Name three factors that can contribute to a pay gap, such as hours worked, occupation choice, experience, or discrimination.

(c) Explain what is meant by an "unexplained" gap.

Jayden is comparing two paths after high school.

• Path 1: a 4-year degree at a public university. Tuition, fees, and books come to $\$13{,}000$ per year. Assume living costs are the same with or without college. After graduating he expects to earn $\$48{,}000$ per year.

• Path 2: work right away at $\$32{,}000$ per year.

(a) Calculate the total direct cost of the 4 years and the earnings he gives up.

(b) Calculate the extra yearly earnings after graduation and the number of years needed to recover the total cost from (a).

(c) Argue whether the decision should rest only on this calculation, and bring in unemployment risk, career advancement, and student debt.

A company has 100 men and 100 women. Men average $\$70{,}000$ a year, and women average $\$63{,}000$. After a study accounts for job title, years of experience, and hours worked, women earn 97% of what comparable men earn.

(a) Calculate the raw pay ratio (women's average divided by men's average).

(b) Calculate how much of the gap the study explains and how much is left unexplained.

(c) Explain how skills and productivity can lead to pay differences between workers.

(d) Argue what the company or society might do about the unexplained part. Mention that similar analyses are also used to study racial pay gaps.