Case Study 5.2m "Market Value: The Market Value of Human Capital"

Directions: Complete the following case study and record your answers on a separate sheet of paper.

Topic: The economic value of human capital.

Objective: To examine why an individual's income is determined by the market value of his or her productive resources and the level of the individual's productivity.

Why does a physician earn more money than a delivery driver does? This may seem like a silly question. But to understand how human capital is valued in society, it is a question worth asking. To find the answer, it is useful to discuss the different aspects of labor that are valued by society. These include effort, skill, experience and knowledge. Using this approach, you can compare how a physician and a delivery driver differ in each aspect.

Effort is one area of labor that is highly regarded. Students often receive compliments and good grades for their efforts. Hard-working employees are also recognized, but with raises and promotions. Physicians extend a great amount of effort in their jobs. It is very rare to find a doctor who works fewer than 50 hours per week. A delivery driver can be successful without exerting a great amount of effort.

CS Question #1: Why do you think there is more effort exerted by a physician than by a delivery driver?

Skill is another area of labor that is valued by society. Physicians are very skilled. They often have tremendous analytical and memory skills. They are required to accurately diagnose and treat a variety of infections and injuries to the human body. Additionally, many physicians specialize in one area of medicine. Each specialty of medicine requires a different set of skills. Surgeons must be very skilled with their hands. Psychiatrists must have excellent communication skills. Delivery drivers need basic skills such as the ability to drive and use directions, good communication skills and customer service skills. Delivery drivers may work in a specific field, such as delivering medical supplies or government documents. In such cases, they may need additional skills.

CS Question #2: Do all doctors have a higher skill level than all delivery drivers? Why or why not?

Experience among physicians varies according to the amount of time they have been practicing medicine. However, all doctors must have at least five years of on-the-job training before they are allowed to practice independently. Delivery drivers have a variety of experience levels. Often, delivery experience is not required to begin working in the field.

Another highly valued aspect of labor is knowledge. Few professions require more knowledge than that of physician. Physicians must complete at least 11 years of academic and practical training. They must pass three very difficult medical exams to become eligible to independently practice medicine. Physicians must continuously learn the latest developments in medicine so they can offer new treatments to their patients. If physicians are not knowledgeable, their patients will suffer. Delivery drivers must be licensed drivers and have knowledge of the rules of the road. Basic math and directional skills are often required.

CS Question #3: Are there any other occupations that require a higher level of knowledge than that of physician? Explain your answer.

There is a great difference between the effort, skill, experience and knowledge of the average physician and of the average delivery driver. Because of this, the two professions are compensated differently. The average physician earns about $164,000 annually. The average annual salary for a delivery driver is $18,700. Suppose that you compared the two salaries to the minimum wage. You would find that no physician earns less than five times the minimum wage, while a large percentage of delivery drivers earn less than two times the minimum wage.

There is no doubt that the contributions of both delivery drivers and physicians are important. Our society would not function as efficiently without either occupation. However, the labor market places a greater value on the physician's occupation. Physicians have more human capital. There are fewer physicians available due to the high threshold of human capital that is required.

CS Question #4: Do you think physicians are paid too much money? Why or why not?

Further Thought: