Extract from How the Human Capital Model Explains Why the Gender Wage Gap Narrowed by Solomon W. Polachek
Linking Expected Lifetime Work and Wages: The Human Capital Model The human capital model links expected lifetime labor force participation to one’s incentive to acquire marketable training. In turn, this training, acquired in school and on the job, determines earnings potential. Thus expected lifetime work history is the most important motivating ingredient in one’s ability to eventually achieve high earnings. 4 The process works as follows: There are costs and benefits to human capital acquisition. The costs are direct (such as tuition and learning manuals) and indirect (mostly foregone wages during training). The benefits are mostly increased lifetime earnings. However, there are some other more intangible benefits like how one conducts him/herself in everyday life, as well as social benefits such as reduced crime, lower unemployment, and greater economic growth. 6 The more years one works the greater the opportunity to reap the benefits of higher earnings. So, for example, w...
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