Economics Report on Human Capital Theory, Education, and Inequality

This report delves into key concepts in economics, focusing on human capital theory and its implications for education. It examines the financial costs and benefits individuals face when investing in higher education, as well as the signalling role of education in the labor market. The report includes an analysis of government policies related to higher education, including financing changes in the UK. Furthermore, it calculates rates of return for graduates, analyzes wage variations, and explores the reasons behind data inaccuracies. The report also addresses labour market inequalities, examining the impact of technological change on skilled and unskilled workers, and government policies aimed at reducing wage inequality. The analysis extends to policy effectiveness and the political challenges associated with implementing such policies.

ECONOMICS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
SEMINAR QUESTION SHEET 6: HUMAN CAPITAL THEORY AND EDUCATION............1
Theoretical oriented question......................................................................................................1
Description of financial cost and benefits that individual faced in making decision of
investment in higher education...................................................................................................1
2. Explanation on education which performing as signalling role..............................................3
Policy related questions...................................................................................................................4
1. Explanation on implication for government policy towards higher education for human
capital and signalling..................................................................................................................4
2. Explanation on factors which have influenced changes in financing of higher education in
UK...............................................................................................................................................4
Empirically-Oriented question.........................................................................................................4
1. a) Calculating gross rate of return...........................................................................................4
b) Analysing the variation in the rate of return for the employees performing in two different
groups..........................................................................................................................................5
2. a) Determining the reason behind inaccurate outcomes through data base............................5
SEMINAR QUESTION SHEET 8..................................................................................................5
LABOUR MARKET INEQUALITIES...........................................................................................5
Theoretically Oriented Questions...............................................................................................5
1. Impact of increment in skill biased technological change on labour market outcome for
unskilled and skilled workers in manufacturing sector...............................................................5
2. Explanation on impact of international increase in manufacturing industry has on labour
market outcomes for unskilled workers .....................................................................................7
Empirically-Oriented Questions.................................................................................................8
1. Calculating measures of inequality of two regions over 4 years............................................8
2.a Consistent measure for level of inequality............................................................................9
2.b calculation of level of inequalities........................................................................................9
Policy-Focused questions..........................................................................................................10

1. Type of policies could be introduced through government for decreasing levels of wage
inequality...................................................................................................................................10
2. Explanation on reason why policies are not popular and achievable from political
perspective................................................................................................................................13
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Economics is referred as study of scarcity and how people uses resources and to
responding to incentives along with decision making. It is social science which has presence of
direct concern with consumption and production of services and goods. It studies about
businesses, nation and government for making choices for resource allocation to satisfy needs
and wants and for identifying how group must coordinate and organize efforts for attaining
maximum output. The present report will give discussion about description about financial cost
and advantage that any individual facing for decision making to invest in higher education or not.
Furthermore, it will provide explanation about education to perform related to signalling role
along with calculation of gross rates of returns for graduate employees and how it varies from
workers in distribution of wages. In the same series, it will articulate about labour market
inequalities and government policies for introducing the decrement in level of wage inequality.
SEMINAR QUESTION SHEET 6: HUMAN CAPITAL THEORY AND
EDUCATION
Theoretical oriented question
Description of financial cost and benefits that individual faced in making decision of investment
in higher education
Education is considered as one of most important decision for individual with context to
themselves and for country (Giloth, 2019). Many students are there who has taken loan from
federal institution for their education and according to a survey, it is found that there are 9
millions students who have taken loan from their education. Graph which shows individual
human capital decision for their own education is as follows-
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With this investment, society also get benefited in higher tax revenues, improvement in
health, increase in volunteering and voting and decrease in criminal behaviour. US society thinks
that admission in college makes them financial weak (Henderson and Scott, 2018). There are
some students who are benefited with high quality education at secondary level but did not enroll
in college, did not invest for their education. Government have developed multiple strategies so
that individuals who are capable will complete their higher education and will make efforts to
bright their future. Federal student aid policy is one among them. Government address several
steps such as scholarship aid, tax credits, pell grants etc.
With the result, now there are more than four out of five direct loan students which
means nearly 3 million recipients are there who take direct loan to invest in their education. Its
overall benefits is that to develop the career, workers which have bachelor degree are earning
nearly 1 million in comparison to workers who are just diploma holder (Greene and Lawler,
2019). Full-time workers, with the age of 25 are nearly earning income of $360000. There are
other cost too which students has to bear other than college fees. These cost are direct cost of
tuition and fees but with government policy of tax credit and accounting for grants, students are
able to offsets these costs. A graph which shows college earning premium over the time is as
follows-
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Illustration 1: College earning premium over time
( source: Investing In Higher Education: Benefits,
Challenges and The State of Student Debt, 2016)

Therefore, with the help of government policies, many students are now capable for
developing their higher education and to develop bright future for them. Increase in cost of
college and board is the factor which affecting individuals decision to complete their education
but by several policies of providing benefits, students are completing their graduation study.
2. Explanation on education which performing as signalling role
Signalling is considered as idea by which one party convey its message to another party.
One party means the agent and another party means principal. Signalling plays an important role
on the performance of worker. It is a process in which education act as signal which provides
observation to employee regarding selection of work. This is the process where worker which
have higher ability will attain higher level of education. This will overall help in increasing
productivity of employee in organization. With the below diagram, it will be effectively
analysed.
According to this graph, it can be analysed that signalling role in education play an
important part for developing someone's career. This graph predicts that equilibrium invest in
education. It is because performance on job of employee will reveal its true ability in performing
task by building effective resume which relay on education. It also sorts between workers who is
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skilled and unskilled and will potentially increase human capital productivity in organization
(Bartholomae and et.al., 2019).
Policy related questions
1. Explanation on implication for government policy towards higher education for human capital
and signalling
Education is considered as one of the important determinants for individuals of wages.
According to last decade, premium earning which associate with collage has risen substantially.
But many debates are conducted regarding mechanism which shows that education leads to earn
higher wages. Major debatable topic regarding education is with human capital and with
signalling. Human capital is the theory which states that with education individual will able to
earn higher wages and will also able to increase their productivity. Signalling theory states
correlation which is between education and unobserved ability.
According to case study of Holmes and Mayhew (2015), there are very fewer people who
consider education an important part therefore, to promote education among people there are
various policies which set by UK government. Such policies of UK government are as follows-
 Students from families which earning less than £25000 will get full grant which helps
them with their living cost.
 National scholarship programme is opened by government where universities and
colleges offered extra financial help to students who comes from disadvantaged
background. The program runs for three academic year that is from 2012 to 2013, 2013 to
2014 and 2014 to 2015.
 Government is providing £25 million for the development of nation's higher education.
Both human capital theory and signalling explain reason of higher earning by educated
workers. This factor is important for government because main concern of government is to
increase well-being of population which overall helps in increasing economic growth (Short and
Keller-Bell, 2019).
2. Explanation on factors which have influenced changes in financing of higher education in UK
Government policy for increasing education in country has significantly benefited to
individual who wants to educate. As education is not considered for increasing productivity but
at least it provides an idea where individuals by matching jobs will correctly able to select for
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themselves. Huge number of private educational institutions which charging higher fees and
tuition fees are influencing finance of students who are completing their students on
governmental loan.
Private and social return to education:
This is the factor which also influencing financing of higher education because of private
and social rate of return. It will be calculated with evidence that individual which have higher
education are earning higher wages and individuals which have lower education are getting
lower wages. Therefore, to change this condition in UK, government has developed strategies by
which individual will able to match jobs in market and choose correct one for them by which at
least social rate of return will not be obtain as zero. Without sorting, there will be misallocation
of costs and education will not analyse properly which overall will affect social return of
country.
It also helps individuals in matching correct job in accordance to develop bright future for
them. UK have time where its social rate of return is measured as zero. Government has
developed effective training programs so that a proper guidance will be provided to society. It
also helps in developing lesson to youth regarding development of work habits and improve
skills for performing better work.
Empirically-Oriented question
1. a) Calculating gross rate of return
Rate of return
Graduates Aged 25-29 Aged 30-59
10th percentile
Median 75% 105%
90th percentile 87% 100%
Formula:
Rate of return=
Ending value – Beginning value/ Beginning value
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b) Analysing the variation in the rate of return for the employees performing in two different
groups
In respect with ascertaining the variations in the wages of employees located at different
places and age groups. Thus, these changes have been based on the proportions level of
employees which are graduated and school leavers as per their ages. As per 30-59 age group
population there are higher employment rates for the graduates which are earning comparatively
higher revenue than age between 25-29.
2. a) Determining the reason behind inaccurate outcomes through data base
There has been reason behind the inaccurate outcomes from the data base which is due to
consideration of the short period and small data base to analyse the outcomes. Along with this,
the age factors and the data base have been collected was not appropriate and adequate as per
making favourable study over such variations.
SEMINAR QUESTION SHEET 8
LABOUR MARKET INEQUALITIES
Theoretically Oriented Questions
1. Impact of increment in skill biased technological change on labour market outcome for
unskilled and skilled workers in manufacturing sector
Technological progress is replicated as main driver for economic growth along with
consequences of distribution. There is special emphasis on occurrence of both mismatch about
effectiveness of compensation mechanisms and technology based explanation about
unemployment in labour market. As skill biased technological change is an exogenous alteration
in production function for increment in unit demand ratio at current level of wage (Nielsson and
Steingrimsdottir, 2018).
With the development of technological change labour market has mostly affected in all
the countries of world. This technological changes lead to many transformations in labour
market. Unions have lost prevalence during period of technological change and centralised
bargaining has replaced with decentralised bargaining many sectors of US.
There are positive effect of change with technological development in market economy
of labour. In comparison to past labour market, there are now more skilled labours who are more
employed both in absolute number and also related to less skilled counterparts. With below table
it can be clearly defined wage rate of employment in UK and US.
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With this table, it can be clearly confirmed that there has been a rapid increase in skilled
group of workers in both countries. In its opposition, wage gap between graduates workers and
non-graduates workers has been increases in both countries and which overall affected wage of
unemployed workers (Kyriakide, Creemers and Panayiotou, 2018).
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This graph shows that there is two sets of labour market which is both for skilled and
unskilled. Equilibrium with this graph is model which intersect relative demand and supply.
Such curves are Do ans So. In accordance with demand and supply curve, demand increases very
fast than supply. Therefore, it can be said that demand has shifted for more skilled workers.
Labour demand curves move in opposite direction which indicates wage and employment
outcomes both manufacturing and service sectors. Therefore, it can be analysed that unskilled
workers considered as outcomes which is of race between demand and supply.
2. Explanation on impact of international increase in manufacturing industry has on labour
market outcomes for unskilled workers
Technological changes has brought a good growth for manufacturing companies across
the nation. With the movement in trade pattern globally, there will be an effective outsourcing in
country where companies of UK will able to compete at global market. Companies like
manufacturing and service by moving globally mainly impact on labour demand by which curve
will shift in opposite direction. Its positive outcomes is that companies now getting more skilled
worker for its business operations (Goldin and Katz, 2018).
Globalisation helps countries in upgrading with new technological capabilities. But to
improve that capabilities, human capital is also been increased with globalisation in which
training and skills upgrading program is an important factor. By increasing human capital,
company will able to get skilled employee which also benefited individuals who are unskilled.
With the below figure, this information will clearly get analysed.
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By moving in global market manufacturing companies will able to keep their labour costs
low by hiring them from emerging market where people have low standard of living. Demand
curve shift in opposite direction because with the outsourcing, skilled workers will get higher
payment in comparison to unskilled workers. With this demand and supply curve wages and
employment of labour will get analysed. This curve shows demand of number of workers which
are employed and not with work-hour per year. Demand of labour will depend upon the
productivity of workers and prices which paid on worker's output.
Demand for labour will get shift with marginal product of worker changes, two factors
which determine demand, training and education among labour and demand of market.
With trend 1: it is analysed that there is an increase in real wages of labour. This graph
shows that there will be an increase in demand for labour and both real and employment wages
gets increased. This graph also shows that productivity of workers get increases due to
technological progress and increase in capital. With trend 2: two factors will get analysed that are
-
 Slower growth in real wages of labour which may be because of slower growth in
demand and because of rapid growth in supply of labour.
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