Looking to Benchmark Pay?
Education
Higher education is an expensive proposition in terms of time and money. Therefore, the question of return on investment (ROI) is at the forefront of this decision: How much and what type of education should I get? An economist calculates this in the Theory of Human Capital.
| Theory of Human Capital | Education must result in increased benefits to the employee, and these benefits must pay back both the expense of education and yield a rate of return at least as high as alternative investments. |
|---|
The individual must be able to earn more from their education and this amount must provide enough income over time to exceed what they would have made by working the whole time.
Here's an example…
It cost $100,000 for Joseph to attend college for four years. Before Joseph started school, he was earning $15 per hour. If he had worked for four years, earning $15/hour, Joseph would have earned a total of $124,800.
Joseph has to earn enough in his working career (after college) to cover the cost of his education and the lost four years of income.
Changes in the demand for labor have increased the education of the labor force. The greater the difference in compensation between a high school graduate and a college graduate, the more likely the individual is to obtain higher education. When there is limited pay dispersion, fewer people choose to go to college.
Technology has opened many new jobs that require a high level of education with correspondingly higher pay rates. New industries, such as information technology, are the fastest growing industries in the United States. As a result, pay differentials in the United States have risen dramatically in recent years.
Memory Jogger
In countries where few people go to college and most people don't complete high school, what could we expect in these countries?