Question 1

Which of the following factors does NOT determine the market rate of return to education?

Accepted Answer

All the listed factors (future earnings, foregone income, direct costs of education, and interest rate) are indeed determinants of the market rate of return to education. They all play a role in calculating the profitability or return on investment in education, but none of them is an exception to not determining the market rate of return to education.

Question 2

Which of the following INCORRECTLY addresses the problem of "ability bias?"

Accepted Answer

The problem of "ability bias" refers to the difficulty in isolating the effect of education on earnings from the effect of innate ability, which may also influence both earnings and the level of education attained. Options A, B, C, and E all correctly address ways to understand, mitigate, or describe the implications of ability bias. However, option D, which claims that recent empirical studies have found the problem of "ability bias" to be exaggerated, does not correctly address the problem. It makes a broad, unsubstantiated claim about empirical findings without providing a methodological approach to dealing with ability bias.

Question 3

Mary is an 18-year-old high school graduate who can take a job paying $30,000 without further education. The prevailing interest rate is 10 percent.
-How do employers typically finance training?

Accepted Answer

Employers typically finance training by initially paying workers less than the value of their marginal product, allowing the employer to recoup training costs over time.

Question 4

________ in the relative supply of ________ workers would _________their wages.

Accepted Answer

An increase in the relative supply of unskilled workers would depress their wages due to the basic economic principle of supply and demand. More workers competing for the same jobs typically leads to lower wages.

Question 5

In the context of hiring and recruitment, which of the following is not true of a sorting device?

Accepted Answer

A sorting device is not an integral part of human capital theory. Instead, it is associated with signaling theory, which offers an alternative explanation for the correlation between education and earnings, differing from the human capital theory's focus on education as an investment in skills and productivity.

Question 6

The model of human capital can be used as an analytical tool for labour supply phenomena and labour demand phenomena. On the supply side, it is used as a tool to determine an individual's decision to invest in education. Explain in intuitive terms this approach of determining whether an individual should obtain a higher degree or certification. No graph is necessary, but you should cover the assumptions which underlie this approach and the major variables which play a role. What implication does this model have for labour supply? Discuss the role of human capital attainment in the demand for labour.

Accepted Answer

The answer of The model of human capital can be...

Question 7

Which of the following equations corresponds to the most common form of the empirical earnings equation? S denotes the number of years of schooling, EXP denotes the number of years of experience, AGE denotes the age of the worker, epsilon denotes a disturbance term, r denotes the rate of return to education, and ln denotes the logarithmic operator.

Accepted Answer

The most common form of the empirical earnings equation in economics is given by $ \ln Y = a + rS + \beta_1 \text{EXP} + \beta_2 \text{EXP}^2 + \epsilon $, where $ \ln Y $ is the natural logarithm of earnings, $ S $ is years of schooling, $ EXP $ is years of experience, and $ EXP^2 $ captures the diminishing returns to experience. This corresponds to choice D, which correctly includes a constant term $ a $, a coefficient $ r $ for schooling $ S $, linear and quadratic terms for experience $ EXP $ and $ EXP^2 $, and an error term $ \epsilon $.

Question 8

The demand-side interpretation of human capital has been challenged by another model, the signaling approach, which offers a contrasting view. What is the economic role for education in this paradigm, and how does it contrast with the economic role in the human capital model?

Accepted Answer

The answer of The demand-side interpretation of human capital has...

Question 9

Mary is an 18-year-old high school graduate who can take a job paying $30,000 without further education. The prevailing interest rate is 10 percent.
-Now assume that after completing a one-year post-secondary program, Mary would earn $60,000 than if she had stopped her education right after high school. The present value from age 18 to age 20 would now be given by:

Accepted Answer

The present value calculation involves discounting future earnings to their present value using the given interest rate. If Mary earns $60,000 more after one year, the present value of this additional income over two years (considering the interest rate) is $104,132.

Question 10

In the absence of________ , general training will be financed by the employees.

Accepted Answer

The answer of In the absence of________ , general training...

Question 11

The decision to invest in human capital does not involve which of the following?

Accepted Answer

Investing in human capital involves all the listed factors: direct expenditures (such as tuition and books), projected earnings from improved skills or education, and forgone earnings during the period of education or training.

Question 12

Briefly review the empirical evidence on the returns to schooling, which pertains to the human capital model. Describe in general terms the age-earnings profiles of workers who hold only an elementary school education, those who hold a high school diploma, those who hold some
post-secondary education, and university-educated workers. Has the evidence indicated that investment in human capital is subject to diminishing returns?

Accepted Answer

The answer of Briefly review the empirical evidence on the...

Quiz 9: Human Capital Theory: Applications to Education and Training