The role of education in labor markets

Individuals and the states invest heavily in the education system. Most of the states budgets are directed toward improving the learning process. Education develops individual awareness to the world around them and efficient ways of dealing with the problems of efficiently dealing with the life challenges. This paper indulges in the role of education in the labor market. It analyzes both the supply and demand of labor market to determine the ways learning affects the economy.

The current world comprises of knowledgeable and skilled individuals. Colleges and universities are enrolling more students. Education level increase has led to the increase in the supply of qualified and skilled labor in the market. In the labor market, number of the graduates has increased more than the numbers of industries and companies willing to employ. In addition, the large numbers of graduates have resulted in the increase of the employers bargaining power. Companies dictate the terms of employment because there is a large pool of qualified individuals to choose from in the market. High level of qualified personnel has resulted in the high employment rate. However, this does not mean that the economy has more qualified individual than it needs. David (2) argues, “If there were more college graduates than the economy needed, the pay would shrink.” Qualified individuals are being hired by the different organization, or they are becoming self-entrepreneurs; this has raised the economic status of the society. An analysis of the pay gap between unqualified employees and qualifies employees shows that the difference is high.  David (1) states, “The pay gap between college graduates and everyone else reached a record high last year…” Economic data shows that qualified workers are benefiting more than the unqualified employees from the jobs. Jobs requirements and roles are evolving rapidly due to the changing environment. It is because the current global economy requires more skilled and knowledgeable personnel on ways of dealing with the global business problems. Learning process helps individual in obtaining skills and experience. Education is crucial in refining individuals on ways of dealing with these global problems. Schools equip students with the theoretical and research knowledge, which is very useful in solving global economic challenges. Education does not stop after employment; this is because the work duties keep on changing based on the demands of the economy. The employees have to go through further training to provide them with skills necessary for business improvements. Organizations have adopted various methods of educating their employees. There are two primary processes of learning; they include formal and informal methods. Education is important to an individual as it increases the chances of career growth and success in his or her lifetime. Business managers promote workers who have the skills and knowledge of dealing with new roles and duties in the organization. Employers analyze their employees’ qualification to determine if they can be considered for promotion. If  from the human resource analysis, there are no ideal candidates for the position the management is forced to source from outside.

The lack of skilled and experienced employees results in the demand for high compensation. Soaring payment demands from the educated workers highly affects the rate of demand for labor. Demand for labor in the market is high when the cost of supply of labor is low. Labor demand depends on the productivity of workers. Education increases the productivity of workers hence, increasing their demand in the market. Marginal Revenue Productivity measurement determines the Productivity of workers over a particular period. MRP is the Total revenue obtained from the sale of a particular output in the firm and the marginal physical product. MRP=MPP*P. Supply of labor in the market is established by the analysis of individuals offering their labor services at different wage levels. In the determination of wage rate, the person must be satisfied that the salary covers the opportunity cost of work versus leisure. Several factors shape elasticity of supply of labor in the market these factors includes: first is the mobility of labor. Labor supply is the willingness of people to move from one area to another in such of labor. Education reduces this factor as learning increases the employees’ ability to move geographically as he or she has acquired knowledge that can be used worldwide. Education equips individuals with essential skills that help them in seeking employment opportunities worldwide. The second factor that affects the elasticity of labor is the lack of information about new job opportunities. People lack information on the availability of new jobs opportunities and the payments packages. Labor supply is also affected by the rise of income. When wages are, increased employees feel more autonomous and may not see the need for working. As the cost of labor rises, the opportunity cost also increases (leisure).

Investment in learning is done when one has hopes that he or she will get a return on their skills will be demanded in the labor market. Those people with high skills and knowledge expect that they will get high salary than the others as their investment in education is high compared to others in the economy.  Capital value in the economy relation to individual productive is the central assumption in determining the role of labor in the economy. The intensity; of the yield of an employee can be determined by his or her education level and the level of motivation in the organization. People invest in education with the hope that they will be compensated in the labor market. Baum (2) argues, “Overall, people with a college education perform better in the labor market than those people with no education high school.” Therefore, it is possible to conclude that individuals with education are more productive and useful to the firm than those with little or no knowledge. For one to live a beta life he or she needs better education to secure a well-paying job. Baum (2) states, “It is increasingly difficult to maintain a middle-class lifestyle without postsecondary credentials, and the economy, social, and civil benefit of a more a more educated population…” Individuals need to invest in education as it helps them in improving their livelihood in the future. It is almost impossible to have higher economic level without education as learning improves the chances of success. However, there are income disparities with people who have the same level of education or skills. There is income inequality among people of the same skills. Baum (2) further notes “growing income inequality does not just involve a growing gap between the earning of the most educated and the least educated people; there is also increasing variation within education categories.” The difference means individuals are not compensated on the basis of the investments they make in school. The labor market is very unfair to the educated individuals; this is because the market does not adequately pay them based on their investment in education. Several people with the same level of knowledge in the same market have higher pay than other employees. Organization demand labor at different rates is causing the variation in payments.

Education investment cost is very high for university and college students. There are more students undertaking college certificate courses than the degree causes. Baum (3) states, “there were more certificate and associate degree (2 million) than bachelor’s degrees (1.7 million) in 2010-11…” The data show that many people have invested in non-degree courses. Some people fail to participate in learning due to the high cost of education at the university level. Income earning across the world for people with the same degree course is different. In most developing countries, most workers are underpaid despite their high education levels. Comparative studies have showed that the wages of people with the same level of education but in different countries have a huge wage gap. The difference is caused by the level of demand of the skilled labor and individuals’ salary requirements for supplying their skills. Federal-state plays a role in determining the cost of labor, through employment policies. Baum (5) argues, “… there are significant differences in both earnings levels and earnings premiums across occupations.” Education is an efficient tool for preparing students to enter the labor market. Learning also equips students with the necessary skills to help them in understanding new experiences. However, High investment in education does not directly mean relate with the economic growth. Current graduate are faced with a weak labor market force. There are a large number of unemployment individuals who are qualified and skilled to take-up the market job opportunities. However, the increase of graduates in the labor market has led to employment. For some students, it is hard getting a job matches their skills. As the number of educated individual increase in the market, the employers become the focus of attention. The employer has higher bargaining power than the employees do. However, the course selected determines the employment chances in the labor market for instance; business is the most done course, and, therefore, most of the skilled employees in the market are business students. The employment rate of the skilled is lower than that the unskilled unemployment rate. Baum (7) further states, “The 5.5 percent 2012 unemployment rate for 23-to-26 years old bachelor’s degree recipient-the group that includes many of the recent college graduates for whom there is so much concern-range, 9.9 percent…” Most of the unemployed are the younger graduates, the order graduates from 25 to 34 are employed. The unemployment data shows that education has a significant effect on individual chances of securing a job in the labor market. Being unskilled in the current word economy will lead to poor pay or unemployment.  Employment opportunities for students undertaking degree programs are lower than a few years ago. Baum (7) notes, “A four-year college degree is not a guarantee of immediate and well-paid employment, especially for students graduating into the weak labor market.” People who are currently graduating are finding it hard to be employed; however, the struggle is higher for the unskilled individuals in the labor market. The education cost has increased over the past years, however; the compensation rates are not commensurate with the investment value of learning. Baum (7) argues, “Skeptics of the value of a college education often argue erroneously that the payoff is declining.” The argument is because, in the past, the qualified individuals were employed immediately or before completing the studies, however, this has changed as people wait longer before they can be employed.

European center for the development of vocation training (17) observes, “European labor market has significantly changed the nature of the demand for the skills over the past few decades…” The main reasons for these changes are the rapidly changing economic environment and the competition in the labor market. People are investing in the learning process to remain competitive in the market. Due to the high levels of competition in the labor market individuals are finding it hard to be employed with a certificate or bachelor’s course degree only. University and college education is very expensive, therefore, most student borrow loans to finance their education investment. Hershbein, Harris and Kearney (1) states, “Today, roughly 70% of American bachelor’s graduates leave school with debt, and for those that do, the median balance is $26,500.” The student repays their loans during the first decade of employment. It is important note that employees earn the lowest amount of wages in the first years of employment, and during this period, they are expected to repay their student loan through monthly repayments. The burden of repayment is high for the learners whom their jobs salary starts from a low level and gradually grows to a bigger level. The weight reduces as payment level increases in the employment field. After salary rise, the students can pay their loan balance without strangles enabling them to benefit from their education investment. Hershbein, Harris, and Kearney (2) notes, “However, the share of earnings necessary for loan repayment varies substantially across majors. With typical earnings and student debt, borrowing graduates in drama and theater face payments of 24 percent of their earnings during the first year of repayment.” The rise of compensation is different according to the bachelor’s majors; some courses attract high percent of monthly repayments. After college, the student loan debt is almost equal across disciplines, however; their payment in the labor market differs. The variation of wages means that the time for repayment will be longer than that of individuals with high first payments. After the completion of the loan repayment process, the students will benefit fully from their education investment. Brown Center on Education Policy at Brooking (3) notes “College tuition and student debt levels have been increasing at a fast pace for at least two decades.” The observation means that the need for higher loans has increased due to the high level of education loan. Students have to borrow more to finance their education than in the past years. The repayment of loan takes a long time due to the weak economy, which makes it difficult for employers to pay high salary for their employees, and some students find it hard to get jobs. The loan burden experienced by students has resulted in the global discussion on the economic importance of the high level of investment in education and the level of return on the investment.

Brown Center on Education Policy at Brooking (5) states, “In the United States, student lending takes place through two channels, the federal lending programs and the private market for student loans the federal lending program exists because, in the absence of government Intervention, the private market would provide too few students access to loans.” The lack of enough funds from the government for all the students means that the government has not fully invested in the education system. The reason for the lack of loan is based on the thinking that individual knowledge or skills cannot be used as collateral for the physical capital. Students’ loan for lenders is highly risky; this is because the lender cannot predict the future of the students. It is impracticable for them to repay their students loans If the student fails to obtain a job. The federal states offers students loan at a lower interest rate than the private lenders. Most students prefer borrowing from the state than the private industries because the government has better terms for repayments. Brown Center on Education Policy at Brooking (7) observes, “Unlike the loans offered in the federal lending programs, private lenders offer loans with interest rates that reflect a borrower’s likelihood of default.” The individuals from low-income families face high-interest rate from the private lender due to the high risk that they will not pay. As a result, this means that the cost of education investment for the students from a humble background is higher than those whose families are economically stable. The high cost of student loan is a major problem in the employment industry. Students are financing their education through school debts, which increases the education expenditure due to the high-interest rates on loans. The loan interest rate has increased the cost of learning for bachelors and collegiate students. The cost can be reduced if the federal government fully invests on the student loans. Turner and Avery (167) argue, “This underinvestment in human capital presumably reflects an imperfection in the capital market: investment in human beings cannot be financed on the same terms or with the same ease as investment in physical capital.” The government and the private lenders need to analyze their policies on student loans differently from the investment in physical capital. The government should provide zero interest loans to students undertaking the bachelor’s courses. The private lenders should also provide loans at a lower interest rate such as one percent to enable the students to acquire knowledge at a lower cost. The student loan will improve the level of the educated individuals in the economy. Turner and Avery observe, (167) “…student loans can potentially improve the efficiency of the economy by raising the supply of college-educated workers in the labor market.” Workers and students will be encouraged to take the low rate student loan opportunities to pursue further education. It will reduce the cost of education as the interest paid back will be less than which is currently charge. The federal-state policy on repayment should ensure that the students repay the loan at a more favorable rate. Students determine how much to borrow based on their expected career path and the cost of education their chosen field of study. Low-interest loans will reduce the cost of education, hence increasing the supply of labor in the market. Individuals will be willing to offer their labor at a lower cost since; they incurred little cost during their studies. The cost of labor will decrease due to the high numbers of qualified individuals. The compensation rate will also reduce because the employer will have greater bargaining power than they do in the current labor market. In addition, the rate of unemployment will increase if more individuals receive college and university education.It is because the rate of supply of labor does not match the growth rate in demand for labor. The high supply will lead overpopulation of qualified individuals in the market. Global industrial growth has reduced due to the substantial economic recession and the high competition. Companies have experienced high levels of competition due to the growth of the global market. This competition has led to the adoption of low-cost production strategies. The approach reduces both the cost of human and capital resources in the company, to reduce the market price of their products.

Carnevale, Rose, and Cheah (2) observe, “Despite a general earnings boost conferred by a degree, earnings vary greatly depending on the degree type, age, gender, race/ethnicity, and occupation of an individual.” Despite the equal level of education, men earn more than women do. Both men and women who are undertaking the same course incur similar expenditure, however, in the labor market men are rewarded better than women are. The individual race also determines the level of compensation in the market. African American individuals with master’s degree earn less than the whites with a bachelor’s degree earn. The variation based on race is unfair in the labor market as students are not able to gain from their investment. The labor market should compensate people based on their efforts in education. Carnevale, Rose, and Cheah argue (3) “some people with lower educational attainment earn more than their more highly educated counterparts as a result of occupational difference.” The situation is termed as concept overlap. The difference in occupation also differentiates the payment levels because organization have different work policy and compensation rate. The below diagram shows the level of income based on their education. It is clear from the statistics that those with highest level of education have high salaries. The gap between the most educated employee payment and the least educated is very high. This figure shows that investment in education is a productive option for students, as they will earn high salaries based on their level of education.

 

 

 

 

 

Oreopoulos and Petronijevic (1) observe, “Despite a general rise in the return to college, likely due to technological change, the cost-benefit calculus facing prospective students can make the decision to invest in and attend college dauntingly complex.” Students have to decide on what they aspect from higher education, the course they choose determines their future pay. Some occupations are highly paying than others. Students face financial constraints when choosing the courses as some learning program requires high investment than others. In addition, the students face information challenge, for instance, student lack information on the appropriate loan to take for their studies. The students who are likely to benefit more from postsecondary education funds are those who are well informed about the available loan and training programs that are well paying. Oreopoulos and Petronijevic (41) state, “Prospective students, must give careful consideration to selecting the institution itself, the major to follow, and the eventual occupation to pursue.” The careful selection of courses helps the individuals in the future, as it will determine the rate or level of investment they will receive after school. Students need to research deep on the available job opportunities, their rate of compensation and supply.

In conclusion, education levels in the United States have improved due to individual, private lenders and the federal government involvement in the education system. Education investment plays an important role in educating the labor force on the growing global economic challenges. Those individuals who are already employed should also seek to be enrolled in the universities and colleges to build up their skills and understanding of the economy. Students have to choose between the federal student’s loan and the private lender loans. The government loans have less interest rate and better repayment terms and conditions unlike the private banks, which has high-interest rates for the individuals from humble backgrounds. The current labor market has more qualified unemployed individuals than several decades ago. If the rate of education interest continuous to develop, the labor market will have more qualified individuals than the market needs. Individuals who have invested in education will not fully benefit from their investment, as it will have low returns. Demand and the supply of labor are almost at equilibrium; this is because there are more educated people than before. The state should increase its student’s loan budget allocation to reduce the enormous burden of education. In addition, the government and the private lenders should ensure that the interest rate of the student is lower than the current interest rates.