Suggested Target Age: Grades 9-12

Topics Covered: human capital, jobs, labor, salary

Source: Powell Center for Economic Literacy

Time Required: 30-45 minutes

• that their skills, talents, interests, and education make up their personal human capital
• that their human capital affects their ability to earn an income
• investing in their human capital increases their earning potential

State Academic Standards Key
California: History and Social Science: 12.2.1, 12.2.2. Also see Career Technical Education standards.
Florida: Social Studies: SS.D.1.4.1, SS.D.2.4.1, SS.D.2.4.2.
Indiana: Social Studies: E.2.1, E.1.1, E.1.2, E.1.7, E.2.7, E.3.11. Guidance: 9-12.1.5
Virginia: Civics and Economics: CE.9, CE.11, CE.12.

Materials Needed:

• 2 copies for each student of Exercise 7.1.
  
• Copies for each student of Exercise 7.2.
  
• Recent data about real people’s incomes.  Sources:
• first March issue each year of Parade magazine.  The information is also available on Parade’s website, “What People Earn,” at  http://www.parade.com/articles/editions/2007/edition_04-15-2007/WPE_lead
• Bureau of Labor Statistics, “Wages by Area and Occupation”  http://www.bls.gov/bls/blswage.htm

Definitions:

Labor:  human effort (physical and mental work) used in the production of goods and           services
Capital: man-made resources used in production:  buildings, machines, & tools
Income: payments made to the owners of resources when the resources are used in production
Wages and salaries:  the income paid to labor, or the income people make when they work in production
Human capital:  the skills, talents and education that increase the value of people’s labor
Investing in human capital: spending time, effort, and money on training and education for the purpose of making labor more productive and valuable
Demand:  the desire for a product, and the willingness and ability to pay for it

Lesson Plan:

1. In this lesson, we will be looking at how you can earn an income in our economy.  An economy is:

the system a country has for allocating its resources to produce
the goods and services that satisfy people’s wants

• “Allocate” means to make decisions about use.  Why do we have to “allocate” our resources?  Because of scarcity.  Another way to say it is that resources are what we use to satisfy our unlimited human wants, and resources are limited.

2. Let’s review what we already know about scarcity, resources, production and incomes, and then let’s talk about how people earn incomes and what determines how much income they earn.

Review:

• production and jobs result from demand for goods and services
• the circular flow shows how people’s spending for goods and services becomes income for workers
• labor is a resource that we all own
• the income people earn from contributing their labor to production is called wages and salaries

3. Since every person owns at least one resource – his or her own labor – most people earn their incomes getting a job – which simply means agreeing to let someone else use your labor in return for wages or salary. 

Here is a list of some real people, their jobs, and their incomes:

• Michelle                  coffee shop clerk, New York              $8,000
• Jason                fire investigator, Mississippi              $46,000
• Joe                   engineer, Colorado                     $65,000
• Gina                 elementary teacher, Texas                $39,000
• Carla                 high school counselor, Illinois      $68,000
• Michelle            court reporter, New Jersey                $90,000
• Jimmie              police chief, Tennessee                    $124,000
• Meg                  CEO of Internet Co., California     $800,000
• Janine               Bus driver, Virginia                     $22,000

4. Why do some jobs pay more than others?  One reason is that different jobs require different levels of knowledge and different skills.  And, the opportunity costs of getting the skills and knowledge differs from occupation to occupation.

• For example, does anyone know how long you have to go to school to be a lawyer? K-12 plus 6 or 7 years of college
• What about a lab technician?  K-12 plus 2 years of tech school
• What about a fast food worker?  Maybe only K-8.  Fast Food restaurants hire teenagers.
• What about the manager of a fast food restaurant?  K-12 plus 4 years of college, or K-12 plus lots of experience and on-the-job training.
• What about a teacher?   K-12 plus 4 years of college
• A famous actor or artist?  It depends.  Some have a great deal of education and others just have talent and experience

If you go to school to be a lawyer, you invest a lot of time and money.  College and law school are very expensive.  Also, while you are studying all this time, you are not earning money working.  So you invest a lot to be a lawyer.  When you finish law school, you have a lot of something economists call human capital. 

Human capital is the skills, talent, and education that increase people’s
value in producing goods and services.
When we talked about the resource capital, we said that it includes buildings, machines, and tools – all of which make production easier.  Think of human capital as “mental tools” that make you a more productive worker. 
On the other hand, some people have a great deal of human capital as a result not of their education, but of talents or skills they possess, that can be used to produce the goods and services people want.  Some famous entertainers are in this group.

5. Let’s choose two people from my list on the board and compare their occupations in terms of income and human capital.  Which two people shall we compare?

• Are both of these jobs important?  Yes
• What does each of these workers produce with his/her labor?  Do they produce goods or services?
• Do people in both of these jobs work hard?  Yes
• Then why do they make different incomes?  Because the opportunity cost to work in these occupations is different, and one of the differences in the opportunity cost is the amount and type of human capital a worker must have.
• What kind of human capital does each of these jobs require?
• What is the opportunity cost to get this human capital?  The other things you could have been doing with your time and money while you were in school or training or practicing to improve your human capital.
• Because you have to give up some things now in order to improve your human capital, we call things like education, training, and practice investing in human capital.  Right now, in this very room, you are investing in your human capital.  Your education will make your labor more productive and more valuable.

• Exercise 7.1 will help you identify the human capital required for some occupations.
• Exercise 7.2 asks students to examine their own human capital (skills they have) and things can do or have done to improve their human capital.   .

Informal Assessment        

            On the back of the exercise, write two occupations you might like to have someday.  Write down two ways you could invest in your human capital to prepare for getting these jobs.

Exercise 7.1
Human Capital
Write an occupation in each of the blanks below.  The first occupation should be the job of someone you know.  The second occupation should be a job that you’re interested in.

________________________________            ____________________________
job 1 –(someone you know has this job)                                      job 2 (a job you’d like to have someday)

Fill out the answers to the following questions with your teacher.  Then compare the answers and see how the human capital needed to do a job relates to the income you make and also the investment you must make to develop the human capital.

• How much schooling do you need to have to do this job?

Job #1 _______________:  Yrs of schooling ________________.  Cost of schooling______________
Job #2 _______________:  Yrs of schooling ________________.  Cost of schooling______________

• What special capital (tools, factory, computers, office space) is needed for this job?

Job #1 _______________:  capital needed __________________.  Cost of capital______________
Job #2 _______________:  capital needed __________________.  Cost of capital______________

• Why is this job important to society?  Does it produce a good or service?  What human want does it satisfy?

Job #1 ______________:  why important ? __________________.  good or service?__________
what human want does this job address ? _______________________________
Job #1 ______________:  why important ? __________________.  good or service?___________
            what human does this job address? _______________________________

• What are some things you would like about having this job?

Job #1: ________________________________________________. 
Job #2:  __________________________________________________. 
5.  What are some things you might not like about doing this job?
Job #1: ________________________________________________. 
Job #2:  __________________________________________________. 

• Which occupation requires a greater investment in human capital?  _________________________
• A cost/benefit analysis of choosing an occupation should include comparing the investment in human capital and the resulting income.  If you made a cost/benefit analysis of these two occupations, which would you choose and why?

Exercise 7.2
Your Human Capital
People accumulate human capital all their lives.  We are born with our own God-given talents and we may improve them with training and practice.  We learn in school and through experience.

Look at your answers.  You have human capital!
What occupations do you think you might like, that would be a good match to your human capital?
How might you start investing in your human capital to prepare yourself for this job?