THEORY OF HUMAN CAPITAL
2a iv). State the benefits of age earning profiles.
MEASURING BENEFITS OF AGE EARNINGS PROFILES
Age-earnings profiles are statistics obtained and classified according to age (experiences) and education. This is because earnings depend upon a person’s age, educational qualification, and experiences. Data is collected on the earnings of a sample of workers at a single point in time (i.e, cross-sectional data). The profiles are used to compare the earnings attributable to less education with those for more education or example the, comparison between net incomes of secondary school leavers. The difference in earnings is usually taken as a revelation of direct benefits accruing to expenditures incurred by individuals with more education. Age earnings profiles are therefore used to calculate average lifetime earnings associated with different levels of education.
Characteristics of age-earning profiles:
Age-earning profiles indicate that:
- Earnings are highly correlated with education; at every age, the highly educated as a group, earn more than their counterparts with else education and therefore, there is no crossing of profiles.
- Earnings rise with age to a single peak after which there is a slow decline
- The profiles are steeper for higher educated individuals than for those with less education
- The higher the level of education attained by a worker, the later the age at which earning reach their peak
Limitations of age-earnings profiles:
- Difficulty in quantifying increased productivity (a direct benefit of education) especially where wages are not allowed to respond to market forces of demand and supply. It should be obvious that productivity is more likely to be lower than wages because wages will not be equal to the value of workers marginal producer.
- Differences in earning are not entirely determined by differences in education. Other factors also influences, e.g., age, natural ability, social class, occupation, sex, inheritance, motivation etc.
- Difficulty in quantifying indirect especially psychological satisfaction arising from education as one climbs socio-economic ladder.
- Studies have shown that education plays a critical role in the socio-economic development of any nation. The world today is a knowledge-based globalized society in which ICT has created an information superhighway. This emergence of a globalized knowledge society puts a high premium on education. Without a sound education, one faces the danger of becoming functionally illiterate in this new world.