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Chapter 12 and Chapter 14 Notes

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ECO 304L
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Econ Notes Chapter 12 and Chapter 14 Chapter 12: Labor Market Issues 1. Investment in Human Capital a. Investment in Human Capital- Investment in education and on the job training that improve the productivity of human labor i. Workers invest by accepting lower wgs while they undertake apprenticeships ii. Students invest by paying for tuition and books and forgoing job opportunities to learn new skills iii. Firm invest in their workers trough OJT and in house training programs iv. Education and Earnings 1. 150% rise if you go to college v. Equilibrium levels of human capital 1. We all ust decide how much to invest in ourselves 2. Diminishing returns of education at some point 3. People who get a pHD or a medical degree are in their 30s before they work forcing them to need higher salaries vi. Implications of Human Capital theory 1. Younger people are more likely to invest in human capital and education 2. Opportunity costs for attending college grow larger and potential for earning declines as you grow older 3. The more an individual discounts the future the less investment in human capital we would expect 4. If you value the prent highly and do not value the future meaning you have a high discount rate you will be less willing to pursue more education vii. Human Capital as Screening or Signaling 1. Human capital theorists say investment in human capital increases proeductivity 2. Others say a. Screening/Signaling- The argument that a higher education simply lets employers know that you are intelligent and trainable andhas the potential to be a good employee viii. On the Job Training- training typically done by employers ranging from suggestions at work to sophisticated seminars 1. General Training- improves productivity at all firms a. Individual bears cost 2. Specific Training- improves productivity only at a particular firm a. Firm bears the cost 2. Economic Discrimination- takes place wheneve r workers of equal abiity and productivity are paid different wages or are otherwise discriminated against in the workplace a. Becker’s Theory of Economic Discriminain i. Vastly broadened the issues that economists study 1. Argued that employers who discriminate against women will lose market share and profit opportunities because they do not hire the best employees available and because they must pay mostly high wage employees 2. Non dsicrminiating firms will have lower labor costs and attract more productive managers and employees b. Segmented Labor Markets- argue that discrimination does not arise due to a lack of competitive labor markets, but rather because these markets, though competitive are segmented into a variety of constituent parts i. Labor markets split into separate parts which leads to wage differentials in sectors even though both markets are highly competitive ii. Dual labor Market Hypothesis- Splits labr market into primary and secondary sectors 1. Primary market has high wages good working conditions and job stability 2. Secondary market is opposite iii. Job Crowding Hypothesis-breaks occupations into predominately male and female jobs iv. Insider- Outsider Theory- workers are segregated into those who belong to unions and those who are unemployed or non union workers c. Public Policy to combat discrminiation
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