Assume that in country A college tuition is 10,000 per year, citizens save 5% of their income for retirement, and there is a mandatory retirement age of 60 years old. In country B, the tuition for college is $5,000 per year, citizens save 10% of their income for retirement, and there is no mandatory retirement age. According to human capital theory, in which country will citizens be more likely to go to college? Explain how the presented facts determined your response.
Here is my attempt:
Younger workers should invest more in human capital than older workers because longer time to recoup investment and earn returns so younger workers invest more in human capital.
Increases in the differential between high school and college earnings will increase college enrollments. The bigger the difference in earnings, more go to college.
There is an inverse relationship between the discount rate and human capital investment; costs upfront, future earnings so size of discount rate make it + or – value; increase costs of education, decrease PV; lower discount rate, more investment in education Increases in the cost of education should decrease the amount of investment in education; how much earn w/ different schoolingwage-schooling locus, decreasing marg. Prod. Of education
Investments such as education and on-the-job training that improve the productivity of human labor. More education leads to higher earnings Earnings increase at a decreasing rate with more years of education Some returns from people learn somethings useful in school and more productive (returns from human capital) but some returns from schooling; studies suggest if all the return due to human capital theory, same return as get from return from high school; implications is that if add up returns for all courses and rate of return of 6% and rate of return from completing h.s. is 12%, 6% of return is knowing something (pass classes), 6% due to graduating from h.s. (credential of graduating)
The human capital model suggests human capital investments such as education provide a way out of poverty and low incomes. Highly educated workers earn more than less-educated workers. For example, more educated workers have higher average annual earnings than less educated workers of the same age group. Education increases earnings because education increases productivity or education serves as a signal of a worker’s innate ability. Earnings rise over time, but at a decreasing rate.
The wage increase suggests that a worker becomes more productive as the person accumulates labor market experience, perhaps because of on-the-job or off-the-job training programs. The rate of wage growth slows down as workers get older. Younger workers add more to their human capital than older workers. The age-earnings profiles of different education groups diverge over time. Earnings increase fastest for most educated workers. The steeper slope of age-earnings profiles for the most educated suggests a complementarity education and postschool investments. This complementarity might arise if some workers have a knack for acquiring all types of human capital.
So my question is, Is there a better answer?