Labor Economics and Higher Education Investment - Research Paper Example

Introduction Labor economists, since the late 1950s, have estimated the future returns of human capital. For all those years, the history of the estimates of future returns on investing in education provides empirical results in an attempt to establish clear patterns. The aim of obtaining a clear pattern is to assist in the decision making process on whether it is economical to devote efforts to education. The literature review below extends its focus on trying to summarize the empirical evidence on human capital investment under uncertainty by integrating post-education investment labor supply. Labor economy analysts declare that human capital investment decreases with a rise in the number of future risks based on returns (Snow and Warren 195). It is important for one to understand the elasticity of demand for human capital before making an investment decision. Background Information on Labor Economics and Higher Education Investment What is labor economics? Labor economics is a section of economics that seeks to understand how the labor market functions. It also looks at the demand and supply of labor in the labor market, and attempts to comprehend the pattern of wages, employment and income. Labor refers to the work services provided by human beings, and it constitutes the four elements of the factors of production. In addition to the study of demand and supply, labor economics also involves the study of factors affecting the efficiency of employees and their deployment between different firms and industries. However, the main focus in the essay is to understand the demand and supply of labor in the economy and its relationship to higher education investment. Several theories revolve around human labor, one of them being human capital (195). Developed by Gary Becker in 1992, human capital refers to the experience and intellect possessed by employees and how they apply those skills in their daily activities. The essence of human capital theory is to explain human resource investment and how to advance its efficiency in a bid to increase the earnings of employees. The individual choice to join a school or training program in order to obtain certain skills is one way of human capital investment. In making the investment decision, a person needs to identify two key points, which are: To what level are the future earnings of labor more than the present costs incurred while training? What is the rate of return of a university degree investment? To determine the rate of return, the investor needs to compare the current expenditure (using the present value of the dollar) and the future benefits (using the future value of the dollar). The formula below assists in determining the rate of return on an investment:  C Read More