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National Income: The Impact of Human Capital

Explore the role of human capital in a Cobb-Douglas production function with capital, labor, and education inputs. Analyze the effects of human capital on marginal productivity and income distribution. Consider government funding for scholarships to promote equality.

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National Income: The Impact of Human Capital

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  1. Ohio Wesleyan UniversityGoran Skosples3a: National Income – How can this be used?

  2. Exercise • consider a Cobb-Douglas production function with three inputs: • K is capital (the number of machines) • L is labor (the number of workers) • H is human capital (number of college degrees)

  3. Exercise • Find an expression for MPL. How does an increase in the amount of human capital (H) affect MPL?

  4. Exercise • Find an expression for MPH. How does an increase in the amount of human capital (H) affect MPH?

  5. Exercise • What are K’s L’s and H’s share of total income?

  6. Exercise • An unskilled worker earns the MPL, whereas a skilled worker earns the MPL plus the MPH. Find the ratio of the skilled wage to the unskilled wage. How does an increase in the amount of human capital affect this ratio?

  7. Exercise • Some people advocate gov’t funding of college scholarships as a way of creating a more egalitarian society. Others argue that scholarships help only those that are able to go to college. Based on the previous answers, how do you respond?

  8. Kuznets curve

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