Human Capital In-Class Questions
Question 1. Theodore is considering a 1-year training program, which charges $40,000 in tuition, to learn how to install airport-screening equipment. If he enrolls in the program, his opportunity cost in forgone income is the $100,000 per year he can now earn. After completing the program, he is promised a job for 7 years with a yearly salary of $135,000. Assume Theodor’s discount rate is 5%. Should Theodore enroll in the program? Why? (Show your calculations).
Question 2. During the 1980’s, the return to a college degree increased a lot while college enrollment remained steady. During the 1990’s the return to a college degree leveled out - it stopped increasing but did not decrease - while college enrollment increased by a lot. Use
the signaling model to explain the observed patterns in the data. A graph may be helpful, but it isn’t necessary.
3. (The writing assignment question) Evaluate the following statement: “along with the other assumptions of the signaling model, for a B.A. to be a good signal of worker productivity, college must be free to all.” In the process of answering, be sure to address why it is typically claimed that educational attainment (e.g. getting a B.A.) is a good signal of productivity. Then, consider how paying for college does or does not interfere with the ‘quality’ of the signal.