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UNIT 6What Will Determine My Income? (7 days)

UNIT 6 - WHAT WILL DETERMINE MY INCOME? (7 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/Students will be able to use knowledge from this unit to predict future earnings based on theircurrent plans for education, training, and career options.Understanding the forces affecting wages and other sources of income will be increasinglyimportant in the future, when workers may change employers and careers more often than in thepast. Regardless of the occupations or industries in which today’s students eventually work, theyare likely to find that they will have to continue their education and training to maintain orincrease their earnings.Gaining knowledge and skills is an investment in one’s own human capital.EPF.4 The student will demonstrate knowledge that many factors affect income bya) examining the market value of worker’s skills and knowledgeDay 1 Human capital—just another name for skills and knowledgeDay 2 What determines the market value of my skills and knowledge?EPF.4 The student will demonstrate knowledge that many factors affect income byb) identifying the impact of human capital on production costsDay 1 Why do businesses prefer to hire workers with more skills?EPF.4 The student will demonstrate knowledge that many factors affect income byc) explaining the relationship between a person’s own human capital and the resulting incomepotentialDays 1 and 2 What’s the connection between education and income?EPF.4 The student will demonstrate knowledge that many factors affect income byd) explaining how changes in supply and demand for goods and services affect incomeDay 1 How does demand for other things affect my job?Evaluation Day1Virginia Council on Economic Education

Day 1 - Human capital—just another name for skills and knowledgeEPF.4 The student will demonstrate knowledge that many factors affect income bya) examining the market value of worker’s skills and knowledgeContent KnowledgeWhy go to school? Education is an investment in oneself—in one’s human capital.Human capital refers to the combination of a person's education, knowledge, experience, health,habits, training and talent. A person who has acquired more human capital will be able toproduce more. At the individual level, additions to human capital are closely connected toearning higher wages and income. At the level of the national economy, gains in the averagelevel of human capital for the population are a primary source of productivity growth andeconomic growth.3People who have earned degrees have shown their ability in an educational setting. Thisdemonstration of ability, and the productivity of what they learned, will make them valuableemployees. People improve their human capital by investing in themselves in thousands of ways,but most of the ways involve study, practice and self-discipline.3Human capital is more complex than just getting more education. Here is how Gary Becker,who developed the concept of human capital, describes it in his 1999 Nobel Laureate Lecture:“Human capital analysis starts with the assumption that individuals decide on theireducation, training, medical care, and other additions to knowledge and health by weighing thebenefits and costs. Benefits include cultural and other nonmonetary gains along withimprovement in earnings and occupations, whereas costs usually depend mainly on the forgonevalue of the time spent on these investments. The concept of human capital also coversaccumulated work and other habits, even including harmful addictions such as smoking and druguse. Human capital in the form of good work habits or addictions to heavy drinking has majorpositive or negative effects on productivity in both market and nonmarket sectors.The various kinds of behavior included under the rubric of human capital help explain whythe concept is so powerful and useful. It also means that the process of investing ordisinvesting in human capital often alters the very nature of a person: training may changea life-style from one with perennial unemployment to one with stable and good earnings, or2Virginia Council on Economic Education

accumulated drinking may destroy a career, health, and even the capacity to thinkstraight.”3VocabularyHuman capital refers to the skills and knowledge a person has acquired through experienceand/or education.Virginia Board of Education FrameworkPeople’s incomes, in part, reflect choices they have made about education, training, skilldevelopment, and careers. People with few marketable skills are likely to earn much less thanpeople with more skills. When people improve their knowledge and skills through educationand/or experience, it is called an investment in their human capital.Teaching Tips1) Another name for skills and knowledge is human capital. The purpose of this session is tointroduce the idea of human capital and help students understand that gaining knowledge andskills is an investment in oneself. Each person is his/her most valuable resource. Gainingadditional knowledge and skills makes one more valuable in the workplace—and thus, morelikely to earn a better income. Investing in one’s own human capital is like exercise—no one cando it for you—but people can help.2) If you didn’t use a human capital inventory with the students in Unit 1, this would be anappropriate place for it. Conduct an activity that helps students identify human capital they havealready acquired (e.g. ability to read, do math, speak in public, knowledge of computers andsoftware, cook, ride a bike, drive a car, fish, organize people or things, etc.)3) Identify someone of interest to students. Have students suggest human capital (skills andknowledge) that person possesses. Then, for each, discuss how he/she might have acquired thatskill or knowledge. (school, coach, practice, reading, observation, innate ability)4) Have students look at jobs in the want ads in a newspaper or online. Tell them to assume theyare old enough to apply for the jobs--are there any jobs for which they might qualify? Lead themto see that nearly all jobs require specific skills and/or credentials (degrees or certificates). Askthem how they plan to get the qualifications to get a job. Point out that public education is free tothem K-12--and they can gather all of the human capital they are willing to work for. After K-12,one must pay for the knowledge and skills one gains.5) Have students name people or careers of interest to them. Let students work in groups. Eachgroup will need a piece of paper with three columns. Instruct them to list in column 1 skills andknowledge people in those careers would need. In column 2 list how those skills and knowledgemight be acquired and in column 3 list any courses in school which might be helpful in acquiringthe needed knowledge and skills.3Virginia Council on Economic Education

Lessons and ResourcesLearning, Earning and Investing Lesson 3: Invest in YourselfChoices and Changes 6-8 Lesson 4: I am Part of the EconomyChoices and Changes 6-8 Lesson 6: Long Term ConsequencesChoices and Changes in Life, School and Work Lesson 3: My Skills InventoryKhan Academy video clip defines capital and human capitalhttp://www.youtube.com/watch?v=ivy1QmWUtQIGary Becker lecturing on human capital:http://www.youtube.com/watch?v=QajILZ3S2REDay 2 - What determines the market value of my skills andknowledge?Content KnowledgeIncome for most people is determined by the market value of the productive resources they sell.What workers earn primarily depends on the market value of what they produce and how muchthey add to the process.In a market economy, wages and salaries — the prices of labor services — are determined just asother prices are, by the interaction of buyers and sellers.VocabularyResources - The basic kinds of resources used to produce goods and services: land or naturalresources, human resources (including labor and entrepreneurship), and capital.Market - Places, institutions or technological arrangements where or by means of which goodsor services are exchanged. Also, the set of all sale and purchase transactions that affect the priceof some good or service.Price - The amount of money that people pay when they buy a good or service; the amount theyreceive when they sell a good or service.Human capital - The health, education, experience, training, skills and values of people.4Virginia Council on Economic Education

Salary - A regular payment, often at monthly or biweekly intervals, made by an employer to anemployee, especially in the case of professional or white-collar employees. Salaries are paid forservices rendered and are not based on hours worked.Wage - Payments for labor services that are directly tied to time worked, or to the number ofunits of output produced.Supply - The amount of a good or service that producers are willing and able to offer for sale ateach possible price during a given period of time.Demand - The quantity of a good or service that buyers are willing and able to buy at allpossible prices during a period of time.Virginia Board of Education FrameworkTo earn income, people sell productive resources. These include their labor, capital, and naturalresources and entrepreneurial talents.In a market economy, the market value of a resource is determined primarily by the supply anddemand for that resource. A wage or salary is the price of labor; it usually is determined by thesupply of and demand for the skills and knowledge (human capital) a person has.What workers earn depends primarily on the market value of the goods and/or services theyproduce (i.e., what the market is willing and able to pay) and how much they add to the processof its production. For example, a surgeon earns more than the people who assist her in surgerybecause she adds the most value to the production of that service.Workers with skills and education also earn more when there is a smaller supply of people whocan do the job because businesses and consumers who want those skills must pay more.People with more skills and knowledge tend to earn more. For this reason, many people chooseto invest in their human capital.Teaching Tips1) Review: another name for skills and knowledge is human capital. Investing in one’s humancapital generally leads to higher income. Explain: What determines the market value of aresource? (Market value is just another word for price. The market value of something is whatsomeone is willing and able to pay for it. In a market economy, price is determined by supplyand demand.)2) Have students discuss how supply and demand impacts the employment opportunities andwages in the following situations. This could be an opportunity to practice using supply anddemand curves to show the point if helpful.5Virginia Council on Economic Education

a. As more correspondence and bill-paying takes place online, people are using the US Mailless. How will this affect the demand for postal workers? (The demand curve will shift tothe left and fewer workers will be employed.)b. As fewer people use checks for transactions, what will happen to the demand for peoplewho do check clearing for the Federal Reserve Bank? (The demand curve will shift to theleft and fewer workers will be employed.)c. As the population ages there will be more people aged 65 and above. How will this affectthe demand for workers in nursing homes? For physical therapists? (The demand curvewill shift to the right and more workers will be hired.)d. During the Dust Bowl many families couldn’t pay their mortgages and lost their farms.Many moved West hoping to get work picking fruit. How did this affect the supply ofworkers and their pay? (The supply curve shifted to the right and worker pay fell.)e. Few professional basketball players can score 30 points a game. Demand for thoseplayers is great. (Show a vertical supply curve and what will happen if demand increasesfor those players. If demand increases, the curve will shift to the right and the price (thewage) will rise.)f. During WWII most working age men went to war. What did this do to the supply oflabor? (It decreased.) The government encouraged women to be patriotic and go to workin factories. When they did, how did this affect the supply of labor? (It increased—shiftedto right)3) What workers earn is affected by the market value of what they produce.and how much theyadd to the process. What does that mean? (Suppose someone mows four lawns in a day andearns $100. Suppose another person is an orthopedic surgeon who does five knee replacementsin one day. The surgeon’s income will be determined by the payment she gets for doing thosesurgeries. Because the value of five knee replacements is much greater than the value of fourlawns mowed, the surgeon’s income will be much higher.)The author of Harry Potter created value for millions of readers who bought the books while theauthor of a book that is read by only a few readers creates less value and will earn much less.Lessons and ResourcesPersonal Decision Making Lesson 4: A Student’s Potential in the Labor Market: It’s a Matter ofSupply and DemandFinancial Fitness for Life 6-8 Lesson 4: Why Stay in School?6Virginia Council on Economic Education

EPF.4 The student will demonstrate knowledge that many factors affect income byb) identifying the impact of human capital on production costsDay 1 - Why do businesses prefer to hire workers with more skills?Content KnowledgeProductivity is a measure of the quantity of goods and services produced from a given amount ofresources. Businesses seek to improve productivity in order to reduce production costs and, as aresult, increase profits. Thus, businesses seek to hire the most productive employees.People who have earned degrees have shown their ability in an educational setting. Thisdemonstration of ability, and the productivity of what they learned, will make them valuableemployees. People improve their human capital by investing in themselves in thousands of ways,but most of the ways involve study, practice and self-discipline.3VocabularyProductivity - The amount of output (goods and services) produced per unit of input (productiveresources) usedHuman capital - The health, education, experience, training, skills and values of people.Fixed cost - Costs of production that do not change as a firm's output level changes; costs thatmust be paid whether the firm produces or not.Variable cost - Costs of production that change as a firm's output level changes.Total cost - All costs associated with producing a good or service; the sum of total fixed costsplus total variable costs.Virginia Board of Education FrameworkBusinesses seek to lower production costs in order to increase profits.As workers invest in their own human capital and become more skilled, they become moreproductive (i.e., can produce more in the same amount of time) which can lower the cost ofproduction.When people improve their knowledge and skills through education and/or experience, it iscalled an investment in their human capital. Higher skilled workers increase productivity byproducing more in the same period of time than lower skilled workers. Increases in productivitytend to lower cost of production. If four workers can accomplish the same amount of work in aday as five workers, this is an increase in productivity which saves the business the wages of oneworker.Teaching Tips7Virginia Council on Economic Education

1) Set up a demonstration with two computers. Bring in someone who has excellent keyboardskills—perhaps a school secretary-- and find a volunteer who doesn’t type well. Give each apage to type. Time them. Count their mistakes. Presumably the “expert” will be much faster andmore accurate. Calculate how many pages each could type in an hour.Tell students they are running a business typing dissertations for college students and they willcharge $.50 per page.Have students calculate how much revenue each one could generate for their business per hour.Would it make any sense to pay a worker more per hour than the revenue that an hour of theirwork would bring in? (No.)Remind students that what workers earn primarily depends on the market value of the work theyproduce. (The market value of what they produce would be .50 x # of pages correctly typed.)Which typist would you hire? Presumably they would hire the more productive worker(An example of this is in the online EconEdLink lesson below.)2) Review the calculation of profit: Total revenue (money coming in from sales) minus totalcost (sum of all costs of production) = profit. If a worker produces more in the same amount oftime as another worker, then the revenue from his work will be higher, while the cost remains thesame.3) Optional: show the Paul Solman video listed below. Ask why the employer was eager to hireand promote this man. (He invested in his human capital by gaining an education in prison andwas hired because of the skills and knowledge he had gained and his work ethic.) Discuss howthe man’s life might have been different if he had gained an education while in school andavoided prison.4) Discuss how the hope of achieving wealth can affect productivity by energizing people towork harder, while the hopelessness of escaping poverty can discourage people from trying.Lessons and ResourcesEconomics in Action Lesson 8: ProductivityOnlinePaul Solman, PBS NewsHour “Making Sense”, “From Ball and Chain to Cap and Gown: Gettinga B.A. Behind Bars—July 26, 2011https://www.econedlink.org/resources/making-sene-with-paul-solman-from-ball-and-chain-to-cap-and-gown-getting-a-b-a-behind-bars/EconEdLink lesson “If You’re So Smart, Why Aren’t You Rich?https://www.econedlink.org/resources/the-economics-of-income-if-youre-so-smart-why-arent-you-rich/Lecture: Get Rich Investing in Your Own Human Capital8Virginia Council on Economic Education

http://www.youtube.com/watch?v=PpvGhCPhMK0Gary Becker lecturing on human capitalhttp://www.youtube.com/watch?v=QajILZ3S2REEPF.4 The student will demonstrate knowledge that many factors affect income byc) explaining the relationship between a person’s own human capital and the resultingincome potentialDay 1 - What’s the connection between education and income?Content KnowledgeThe buyers of labor services are employers. In competitive markets, they are willing to payhigher wages and salaries to those employees who can produce more or better goods or servicesin a given amount of time. Students who understand this will appreciate the value of the skillsthey can acquire by completing high school, and perhaps college or a vocational trainingprogram.Peoples’ incomes, in part, reflect choices they have made about education, training, skilldevelopment, and careers. People with few skills are more likely to be poor.VocabularyProductivity - The amount of output (goods and services) produced per unit of input (productiveresources) usedHuman capital refers to the skills and knowledge a person has acquired through experienceand/or education.Wage or salary - The price of labor; it usually is determined by the supply of and demand forlabor.Virginia Board of Education FrameworkUnskilled workers earn low pay because many people can qualify for that work; employers donot have to pay more to attract these workers.As people gain human capital (knowledge and/or skills) and practice in a field, they becomemore efficient and productive in that field. This can lead to higher income because employersprefer more productive workers.What workers earn depends primarily on the market value of the goods and/or services theyproduce (i.e., what the market is willing and able to pay) and how much they add to the processof its production. For example, a surgeon earns more than the people who assist her in surgerybecause she adds the most value to the production of that service.9Virginia Council on Economic Education

Workers with skills and education also earn more when there is a smaller supply of people whocan do the job because businesses and consumers who want those higher skills must pay more.People with more skills and knowledge tend to earn more. For this reason, many people chooseto invest in their human capitalTeaching Tips1) The objective is to help students see· that without human capital--education or marketable skills--they will have difficultyfinding a job and will likely only qualify for low paying jobs.· that education/training is the key to higher income and employment· that employers are looking for skills and good work habits· that with persistence and determination obstacles can be overcome.2). Have students explore job openings in the newspaper or online. Can they find any for whichthey are qualified? What is the pay scale for those jobs? What kinds of qualifications are neededfor the higher paying jobs? What kinds of human capital—skills, education, experience?3) Have students, working in groups, guess the difference in income between a non-high schoolgraduate and high school graduate. Between a high school grad and a college grad?Show data. Show data on unemployment. (People with more education are less likely to beunemployed.) Discuss reasons why high school dropouts frequently end up in poverty.4) Have students list 2 or 3 careers that interest them. Have them research online to findpredicted demand and income for workers in those careers. Point out that many vocationalcareers such as plumbers and electricians earn higher income than some college graduates. TheEconEdlink lesson “Wages and Me” would provide helpful information.5) Discuss obstacles students may face in getting additional education and/or training.Play the “Road to Success” game from the Grades 7-8 Choices and Changes lesson below toallow students to identify possible obstacles to reaching goals and ways to overcome thoseobstacles.Consider showing video clips of people who have overcome obstacles (e.g. Byron Pitts,commentator on 60 Minutes or the Paul Solman video clip which shows how a man invested inhis human capital when he got an education in prison and how this education changed hisemployment opportunities.6) Discuss the opportunity costs of education (lost income one might have been earning, thingswhich might have been bought with the money spent on tuition, books, room and board). What isthe risk of investing in education? (One might learn skills that will not be in demand.)Lessons and Resources10Virginia Council on Economic Education

Financial Fitness for Life 9-12 Lesson 6: Why Some Jobs Pay More Than OthersFinancial Fitness for Life 6-8 Lesson 4: Why Stay in School?Financial Fitness for Life 9-12 Lesson 4: Looking for a JobCapstone Lessons 15: Why Do Some People Earn More Than Others? and Lesson 19: Earningan IncomeFocus: High School Economics Lesson 9: Learn More, Earn MoreMathematics and Economics: Connections for Life Lesson 8: Could You Earn a MillionDollars?Choices and Changes in Life, School and Work Grades 7-8 Lesson 8, activity 5: Ways to MakeChoicesChoices and Changes in Life, School and Work Choices and Changes in Life, School and WorkGrade 9-10 Lessons 13: My Human Capital: A Job Application; Lesson 14: How Can IOvercome Obstacles to Achieve My Goals?; and Lesson 15: What Results When People SetGoals and Plan to Achieve Their Goals?Learning Earning and Investing High School Lesson 3: Invest in YourselfEconEdLink Lesson: Martin Luther King Jr. Dayhttp://www.econedlink.org/lessons/index.php?lid=153&type=educatorEconEdlink lesson: Human Capital for Moneyhttp://www.econedlink.org/lessons/index.php?lid=231&type=educatorFuture-Jobs-o-Matichttp://marketplace.publicradio.org/features/future-jobs/EconEdlink lesson: Wages and Mehttps://www.econedlink.org/resources/wages-and-me/Byron Pitts, 60 Minutes correspondent tells his story of overcoming obstacles:http://www.youtube.com/watch?v=HMZIOAbZRiE&feature=relatedPaul Solman, PBS NewsHour “Making Sense” “From Ball and Chain to Cap and Gown: Gettinga B.A. Behind Bars—July 26, 2011https://www.econedlink.org/resources/making-sene-with-paul-solman-from-ball-and-chain-to-cap-and-gown-getting-a-b-a-behind-bars/11Virginia Council on Economic Education

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EPF.4 The student will demonstrate knowledge that many factors affect income byd) explaining how changes in supply and demand for goods and services affect incomeDay 2 - How does demand for other things affect my job?Content KnowledgeChanges in demand for specific goods and services often, in the short run, affect the incomes ofthe workers who make those goods and services.People are buying apps for their phones. This demand results in a derived demand for peoplewho have the skills (human capital) to create apps.When people decide to have a house built, there will be a derived demand for carpenters, roofers,plumbers etc. Thus when many houses are being built there are many jobs for people with thoseskills. However, in 2011, few houses were being built, and thus fewer jobs were available forpeople with those skills.When fewer houses and cars are sold, as in 2008-2011, the derived demand falls for workersinvolved in producing and selling those things. Derived demand also falls for workers who makeinputs for cars and homes (tires, carpet, appliances, engines)VocabularyDerived demand - Demand resulting from what a good or service can produce, not demand forthe good or service itself.Virginia Board of Education FrameworkThe demand for resources, including labor, comes from, or is derived from, the demand for thegoods and services that are produced from these resources. This condition is known as deriveddemand.An increase in the demand for a good or service will lead to an increase in demand for theresources needed to produce that good or service. For example, an increase in demand for newhomes will increase the demand for carpenters. The increase in demand for carpenters will likelylead to an increase in the income of carpenters.A decrease in the demand for a good or service will lead to a decrease in the demand for theresources needed to produce that good or service. This can lead to a decrease in the income ofthose who supply raw materials and other factors or production. For example, the use ofcomputers may lead to decreased demand for notebook paper, which would lead to a decrease inincome for wood pulp producers who sell to paper mills.13Virginia Council on Economic Education

Excess supply (surplus) can lead to a decrease in demand for workers to produce additionalsupply. For example, demand for auto workers decreases when sluggish sales results in excessiveinventories of automobiles.Teaching Tips1) Ask students if they know who LeBron James is. Did they think he should move to Miami orstay in Cleveland? Show Paul Solman video clip below and discuss the economic impact ofLeBron James on Cleveland. Define derived demand. What jobs, goods and services deriveddemand from LeBron James? Consider using the lesson on LeBron James below, and using aspider diagram (below) to show the businesses and jobs dependent on James.2) Consider some Virginia employers. Dupont makes Kevlar which is used in things like bulletproof vests. If there is an increase in demand for bullet proof vests, there will be an increase indemand for Kevlar and an increase in demand for people to make Kevlar. That is called deriveddemand. Demand for employees at Phillip Morris is derived from the demand for cigarettes.Use the spider diagram to illustrate those relationships.3) What do we know about the future? (e.g.The population is aging. The Latino population isincreasing.) What do they think will be in demand in the future? What jobs will increase ordecrease?4) How might derived demand affect jobs for students?5) Have students watch the Napoleon Dynamite video and list his skills. Do the students thinkthere will be a derived demand for any of his skills?Napoleon Dynamite (5/5) Movie CLIP - Girls Only Want Boyfriends Who Have Skills (200…Lessons and ResourcesEconEdLink Lesson LeBron James, the Cleveland Cavaliers and Derived Demandhttps://www.econedlink.org/resources/lebron-james-the-cavaliers-and-derived-demand/Spider diagram:https://www.econedlink.org/wp-content/uploads/legacy/951_Spider%20Diagram1.pdfEVALUATION DAY14Virginia Council on Economic Education