Lecture

Investment in Schooling and Training - Non-Monetary Benefits of Human Capital (1of2)

"This the eleventh lecture in the "Lectures on Human Capital" series by Gary Becker. This is part 1 of a two-part lecture; see Lecture 12 for part 2 of this lecture. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - Professor Becker explains the limitations of the previous model that tries to explain the decision of going to college. Then, he models the decision of education investment in a more general way with a utility maximizing rational choice model. He offers a two period uncertainty model in which agents invest in their human capital in the first period. He explains how this model can be generalized to N periods. He explains how the human capital that the agent has affects the probability of surviving to the next period. Based on this model, he reinforces the idea of the complementary property between different forms of human capital. Professor Becker also shows how the incentives to invest in education are affected by the probability of surviving to later periods in life. These lectures show how more educated people also have better non-monetary outcomes. Finally, Professor Becker explains why education improves marital prospects and why education improves family earnings. He introduces the gains from marriage to this model."


Course Lectures
  • This the first lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize.

  • This the second lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - Professor Becker models the investment in the human capital that parents make on behalf of their children. He analytically develops a simple one-overlapping generation rational choice model in which the parents can only spend income on their own consumption goods or in the human capital investment of their children. He then derives the comparative statics predictions that are implied. These results set up a discussion about intergenerational income mobility and regression to the mean in this context. Finally, he begins to discuss capital markets and their imperfections. Throughout the discussion, Becker assumes the following: a single kind of human capital investment, one-parent household (i.e. no marriage or unisex model), and a one-child household. The parameters in this model are the altruism and the income of the parents, and the parameter that converts the human capital of the kids into earnings. Common microeconomic theory assumptions about utility and production functions are settled. Key concepts: altruism, capital markets, capital markets imperfections, consumption goods, intergenerational income mobility, investment in human capital, one-overlapping generation rational choice model.

  • "This the third lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - Professor Becker continues to discuss the model developed in Lecture 2. He gives intuitive and technical insights about the forces that cause capital market imperfections (and how the rate of return of investment in kids is affected by these). Also, he explains the individual household and social consequences of these kinds of market failures. Afterwards, he gives some public policy recommendations with this respect. Becker then returns to the discussion on intergenerational income mobility and explains the technical details of how it can be measured. He also contrasts the measurement of the intergenerational income mobility with the measurement of income equality. Finally, he returns to the model developed in Lecture 2 and makes two comparative statics model: he investigates how the choice variables change when the parents experience an exogenous increase in their taste for altruism and when the parameter that converts the human capital of the kids into earnings increases.Key concepts: capital market imperfections, income (in) equality, intergenerational income mobility, rate of return."

  • "This the fourth lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - Professor Becker introduces a new parameter in the model that he introduced in Lecture 2 and Lecture 3: the human capital of the parents. He explains in which situation this model adjusts accurately to real world situations. Thus, he begins the crucial discussion and modeling of how human capital of parents affects the human capital of their children. Also, he defines and points out the recursive property of human capital. Then, Becker discusses the microeconomic and macroeconomic consequences of such a property. He introduces and explains a technical and economic property of the household production function: the complementary property between investment of human capital of the kids and human capital of the parents. Furthermore, he explains how the human capital of the parents influences the rate of return of investments in human capital. Finally, he points out the implications for intergenerational income mobility in this new context. Key concepts: complementary between human capital investment of parents and their children, human capital of the parents, intergenerational income mobility, rate of return, recursive property of human capital, rate of return."

  • "This the fifth lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - Professor Becker explains and illustrates the differences between cognitive and non- cognitive abilities. Subsequently, he introduces ability in the model that was developed in the last lectures. He explains what happens to the choice variables of the model when ability increases. Then, he develops a model of intergenerational transmission of ability that allows for children to inherit ability from their parents. He links this transmission process to intergenerational income mobility. Also, he explains how both of these processes behave in the context of perfect capital markets. Finally, he shows how the equilibrium inequality is measured in this model. Key concepts: inheritance of ability, cognitive and non-cognitive abilities, equilibrium inequality, degree of inheritance, intergenerational income mobility."

  • "This the sixth lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - Professor Becker extends the analysis for two kids in the same framework that he works with in the previous lectures. He investigates what happens when two kids have the same ability, what happens when the two kids different abilities, what happens when the parents are more altruistic with one kid than with the other. He addresses the problem in both the perfect and the imperfect capital markets contexts. Then, Professor Becker addresses the problem of uncertainty in the ability distribution of the kids: he explains how this uncertainty influences the parent's decision to invest in their child's human capital. He develops this model under an expected utility framework. Afterwards, he returns to the single child model. Becker allows the possibility that parents can invest in other capital for their child in addition to human capital. He does not specify what kind of capital. He just introduces another kind of capital that can be an alternative for parental expenditures. Therefore, the richness of the kids, in this context, is not just determined by the human capital invested in them but also by the capital bequest that they receive in their adulthood. Key concepts: bequests, expected utility, social planner, uncertainty, efficiency-equity trade-off, physical capital, rate of return."

  • "This the seventh lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - Professor Becker introduces an extension of the model that allows for two overlapping generations. In this model, parents choose their consumption of goods in two periods, their choice of human capital investment for their children, their choice of investment in physical capital, and the bequest that they give to their children when their reach adulthood. As in previous lectures, Becker uses a rational choice model with the aforementioned choice variables. However, in this case the parents have two budget constraints: one for each of the overlapping periods. He explains the connection between the choice variables in each of the overlapping periods and describes technically and intuitively the characteristics of the model. The income of the kids when they become adults, in this case, is determined by the human capital investment made in them and by the bequest that parents give them when they become adults. The consequences for intergenerational income mobility caused by the bequest left by parents do not appear in class but they are discussed in the suggested references. Finally, Professor Becker develops the preference transmission model that is discussed in his Nobel Prize Lecture. This model is an extension to the previous model in which parents are able to invest in "guilt (preference) transmission" so that children will be guilted into supporting their parents when they are older. Key concepts: bequest, consumption goods, degree of altruism, parental income, lifecycle discount factor, preference transmission, guilt."

  • "This the tenth lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - Professor Becker continues to elaborate on the decision to attend college. He also discusses hypotheses for why the cost of tuition has risen. Becker then discusses the consequences of this rise in tuition and how it affects the cost functions of different industries. He explains why many people misunderstand the causation of the rise in tuition and illustrates what he believes are the correct forces. He discusses how the recursive property of human capital is present in this context. Also, he explains why students have a better deal in these days than they had in the past. He questions if college subsidization causes a progressive taxing structure. He claims that the benefits of going to college are mostly private ones and illustrates why there are not large externalities associated with college education. He gives a theoretical and an empirical discussion about the college/high school wage gap in the U.S. He offers facts of other developed and developing countries as well. He also dicusses the extremely negative consequences of dropping out of high school: "high school drop outs are socially condemned in almost every dimension". Finally, he explains why people drop out. Key concepts: benefits of going to college, high school drop out, externalities from education, sheepskin effect, subsidies to education, rising cost of college tuition."

  • "This the eighth lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - In the first hour of the lecture, Professor discusses the preference transmission model that he discussed in his Nobel Prize Lecture. However, in this lecture he deepens the analysis: he offers necessary and sufficient conditions for "investment in guilt to happen", he points out the plausibility of corner solutions in some of the choice variables, and he goes through the insights offered by the first order conditions of this rational choice model. Then, he turns into what he calls a "much more traditional human capital problem" by introducing investment in education. He proposes a model in which the individuals face the decision whether or not to go to college. In this model, the individuals compare the lifetime earnings differential of going to college versus the foregone earnings plus the tuition costs. The ratio of the benefits with respect to the costs is defined as the return of going to college. Key concepts: bequest, foregone earnings, investment in guilt, lifetime earnings differential, returns to education, schooling decisions."

  • "This the ninth lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - Professor Becker continues to discuss the model of investment in education introduced in the previous lecture. In this lecture, he carefully lists, describes and analyses each of the parameters involved in the decision that individuals make when going or not to college. He also works through some comparative statics exercises about these parameters. In this lecture, Becker also discusses a number of stylized facts about the labor market for man, women, and minorities including participation rates, wage differentials and how these have changed over time. Key concepts: discount factor, foregone earnings, lifetime earnings differential, life expectancy, return to education, basic facts about the labor market."

  • "This the eleventh lecture in the "Lectures on Human Capital" series by Gary Becker. This is part 1 of a two-part lecture; see Lecture 12 for part 2 of this lecture. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - Professor Becker explains the limitations of the previous model that tries to explain the decision of going to college. Then, he models the decision of education investment in a more general way with a utility maximizing rational choice model. He offers a two period uncertainty model in which agents invest in their human capital in the first period. He explains how this model can be generalized to N periods. He explains how the human capital that the agent has affects the probability of surviving to the next period. Based on this model, he reinforces the idea of the complementary property between different forms of human capital. Professor Becker also shows how the incentives to invest in education are affected by the probability of surviving to later periods in life. These lectures show how more educated people also have better non-monetary outcomes. Finally, Professor Becker explains why education improves marital prospects and why education improves family earnings. He introduces the gains from marriage to this model."

  • "This the twelfth lecture in the "Lectures on Human Capital" series by Gary Becker. This is part 2 of a two-part lecture; see Lecture 11 for part 1 of this lecture. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - Professor Becker explains the limitations of the previous model that tries to explain the decision of going to college. Then, he models the decision of education investment in a more general way with a utility maximizing rational choice model. He offers a two period uncertainty model in which agents invest in their human capital in the first period. He explains how this model can be generalized to N periods. He explains how the human capital that the agent has affects the probability of surviving to the next period. Based on this model, he reinforces the idea of the complementary property between different forms of human capital. Professor Becker also shows how the incentives to invest in education are affected by the probability of surviving to later periods in life. These lectures show how more educated people also have better non-monetary outcomes. Finally, Professor Becker explains why education improves marital prospects and why education improves family earnings. He introduces the gains from marriage to this model. Key concepts: family earnings, full income, leisure, life expectancy, marital prospects, probability of surviving."

  • "This the thirteenth lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - Professor Becker goes over the model that he briefly introduces during the end of Lecture 12. This is a model of investment in health as human capital, per se. He models this investment process using expected utility maximization in a two period context. The choice variables in the framework he develops are consumption goods, leisure, and health. Again, he explains the technical and economic reasons and consequences of the utility levels appearing in the first order condition in this case of value of life problem. He explains which are the costs and the benefits the agent faces in this context. Also, Professor Becker explains why people so infrequently buy annuities. Finally, Professor Becker explains the concept of Statistical Value of Life and gives some examples of how to calculate it for the U.S. and other countries.Key concepts: consumption goods, convex cost function of health investment, leisure, statistical value of life, utility levels."

  • "This the fourteenth lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - Professor Becker continues to discuss the health investment problem and the Statistical Value of Life. Then, he develops a three period expected utility maximizing problem of investment in health which explicitly makes a difference between the conditional and the unconditional probabilities of surviving. Then, he explains how the investment in health in one period impacts the unconditional probability to survive in further periods, even when investment in health only determines the conditional probability of surviving to the second period. As a consequence, he explains, it is more efficient to invest in good health during young ages; also, he explains the economic and demographic importance of health investments. Also, he explains the time consistency issues in this kind of problem and why the agent's utility maximizing problem takes the unconditional probability of surviving as opposed to the conditional one. Key concepts: conditional probability of surviving, diminishing returns on health spending, health investment, investment in health during young ages, statistical value of life, unconditional probability of surviving."

  • "This the fifteenth lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - Professor Becker returns to the model developed in Lecture 13. However, he extends the model in a way that allows two different kinds of investment in health. In particular, he deals with a case where people can spend in consumption goods, leisure, investing in preventing cancer and investing in preventing cardiovascular diseases. Then, he shows what happens with the spending in each of the diseases when medicine progresses in fighting one of the diseases. These models of health spending on different classes of disease have important consequences for how funding for drug research is allocated and the health care decisions that individuals take. Next, Becker shifts attention to the study of marriage markets. He develops a model of matching and he explains how sorting happens in different contexts. He stresses out how education influences the marriage results. At the end of the lecture, Professor Becker discusses how the investment in kids behaves in these kinds of mode and why the marriage markets do not produce a zero sum game. Key concepts: consumption goods, convex cost function of health investment, leisure, matching, marriage market, positive sorting by education, sorting, statistical value of life, utility levels, polygamy in marriage markets."

  • "This the sixteenth lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - In the first part of the lecture, Professor Becker continues to discuss the model developed in the last lecture about the marriage markets. He gives some more insights and conditions for possible results in it. Afterwards, he introduces the concept of on-the-job training. He develops a model in which people finish school, go to the marketplace, and then receive on-the-job training. He answers who pays for the on the job training under different market and industry structures. Also, he explains why employees may be interested in investing in their own human capital while they are working. He goes through each kind of job training (firm specific, industry specific, general training, etc.) and explains under what circumstances the employee or the employer is likely to pay for it. His model does not explicitly differentiate between learning by doing and investing in education while working because he claims that the conclusions are basically the same. Key concepts: explicit training, firm specific training, learning by doing, matching, industry specific training, marriage market, positive sorting by education, on the job training, sorting, statistical value of life, specific training, utility levels."

  • "This the seventeenth lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - Professor Becker develops a model of job specialization and labor division. He stresses the importance of labor division because of the increasing returns to scale on this type of activity. He analyzes the problem of specialization using a model in which individuals are identical ex- ante and try to maximize the total output of the activities they perform. Becker provides examples that show the great efficiency that result from division of labor and job specialization. Also, he stresses the wastes that society suffers when individuals have to perform labors in activities in which they are not experts as opposed to activities in which they are. Professor Becker explains the differences between his model and the Roy Model commonly used in Labor Economics and explains how both models are helpful depending on the context. He illustrates what Adam Smith's quote about "the division of labor is limited by the extent of the Economy" means in the context of specialization. At the end, Becker argues that specialization or division of labor is clearly beneficial to modern economies as well. Key concepts: specialization, division of labor, increases returns to scale on specialization, Roy Model."

  • "This the eighteenth lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - Professor Becker continues to discuss concepts of the specialization and the division of labor problem. He also gives insights and develops economic models that explain social specialization. However, in this lecture he also introduces concepts such as coordination costs, marriage, and teamwork. He explains when and why the agents of the economy will work together. Also, he explain how differences in personal abilities and how the tasks' difficulty affect the social outcomes. Professor Becker talks about the importance of the market as a coordinator of economic activities. He talks about communication, complementary skills, and entrepreneurship as basic concepts in the understanding of modern economies. Key concepts: complementary skills, communication, coordination costs, division of labor, entrepreneurship, specialization, teamwork."

  • "This the nineteenth and final lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information. - Professor Becker presents a model that studies the interaction between fertility and human capital investment. His model is a rational choice one in which parents choose to spend their income in consumption, number of children, and human capital per child. He explains how parents' make their decisions and explain how the shadow prices of the choice variables involved in this problem span a convex budget constraint. Professor Becker explains why the value of time has grown as countries have developed and how this has to do with the endogeneity of the shadow prices of the choice variables. Key concepts: convex budget constraint, endogenous prices, fertility, human capital investment, shadow prices."