Short answer question

1. What is human capital? How do people usually measure human capital?
List at least two

benefits of an individual with high education attainment.
Human capital refers to the range of unique skills and abilities, as well as social and
personality attributes, which people possess. These skills and attributes produce economic value. A
few of the benefits associated with an individual gaining a high level of educational attainment are a
higher labor force participation rate, lower unemployment rate, and greater earnings.
2. Why is the concept of present value important in decision making? What is the present value
(in 2024) of $34,500 in 2026? Assume the discount rate is 2%.
The concept of present value is important in decision making because calculating present value allows
for comparisons of dollar amounts spent and received in different time periods. A dollar next year
won’t be worth what it is today. For example, we can see that the present value of $34,500 in 2026
with a discount rate of 2% would decrease considerably by 2024.
The formula for calculating present value is:
3. List two job-related characteristics that should be compensated with high wage rates and two
job-related amenities for which people are willing to accept a lower wage rate.
Two job-related characteristics that should be compensated with high wage rates are:
- Jobs that expose a laborer to a high level of risk.
- Jobs that require a high level of educational attainment to perform.
Two job-related amenities for which people are willing to accept a lower wage are:
- A good location.
- Flexible working hours.
4. Using the migration model we have learned, explain why younger workers are more mobile
than older workers, even though both have the same job skills and are offered the same jobs in
another location. List at least two reasons.
According to the labor migration model, younger workers are more mobile than older workers
because:
- Younger workers tend to change jobs more frequently in their 20s but settle into more stable
jobs after their mid-30s.
- Older workers have a smaller payoff period to recoup the costs associated with a job search,
so they are less likely to leave. Additionally, younger workers often experience substantial
wage increases when moving to new jobs. Finally, the migration costs for older workers tend
to be higher.
5. Define job turnover. How can job turnover affect a business's bottom line?
Job turnover is defined as quits and layoffs, or labor mobility within a labor market. Whenever a
company has to replace an employee, it incurs costs. Among the costs associated with labor turnover
are:
- Loss of productivity.
- Loss of clients (for some companies).
- The time it takes to complete paperwork when an employee leaves.
- Advertising for the open position.
- Use of temporary employment agencies.
- Interviewing potential hires.
- Training new employees.
All of these costs can significantly affect a business's bottom line.
6. The data shows that the average women’s wage is about 52% of men’s wage. Does this
statistic imply that there is discrimination against women? Why or why not?
The difference in the average women’s wage and men’s wage may not necessarily imply
discrimination against women. There are several factors that affect the male-female wage ratio:
- Women may choose lower educational attainment, knowing they will stay home.
- Even with the same level of education, women may experience more frequent career
disruption.
- Women's wages are affected by occupational crowding. Due to occupational crowding,
women have been segregated into occupations where the return to education is lower. Women
would be better off if they entered occupations where their skills do not deteriorate during the
years they spend in the household sector.
7. Define and provide an example of the following unemployment concepts:
Structural Unemployment:
Structural unemployment arises when the types of persons looking for work do not fit the jobs
available. Skills might be specific to the worker’s job or industry, and laid-off workers lack the
qualifications needed in the expanding sector. An example of this would be if a lathe operator at an
automobile plant wasn’t able to fill a growing need for teachers possessing bachelor’s degrees or
above.
Seasonal Unemployment:
Seasonal unemployment is similar to frictional unemployment as it does not reflect a
fundamental imbalance of supply and demand. Most of the unemployed workers will return to their
former employer once the employment season starts. For example, workers in both the garment and
auto industries are laid off regularly because new models are introduced with clockwork regularity.
Cyclical Unemployment:
Cyclical unemployment is like seasonal unemployment, but it ebbs and flows based on
business cycles rather than natural seasons. This imbalance may arise because the economy has
moved into a recession. Firms would require a smaller workforce to satisfy the shrinking consumer
demand, and employers lay off many workers. An example of this would be a home construction
company laying off many of its workers due to an economic downturn. An economic recession would
significantly reduce the demand for the construction of new homes.
8. Suppose the labor market has white and black workers, with black workers earning less than
white workers. One firm is discriminatory toward black workers. What type of workers will
this firm hire? What will employer discrimination result in terms of the number of people hired
and business profits?
If a firm is discriminatory toward black workers, it will most likely hire white workers
because it perceives the costs of hiring black workers as higher than their true costs.
The larger the prejudice, the more likely that firms will hire white workers. In this case, the
firm would only hire white workers. A firm hiring only white workers will hire up to the point where
the white wage equals the value of the marginal product. Since white wages are expensive, the firm
will hire fewer workers than it would if it hired black workers. This could result in a less efficient
labor market and lower profits for the firm.

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1. What is human capital? How do people usually measure human capital?

List at least two

The formula for calculating present value is:

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