Microeconomics: Education and Work.

It has often been pointed out that the curriculum in the public schools is geared toward preparing students to enter college. This is a disservice for an increasing number of students. Fewer students will be able or willing to pay the high costs of higher education and so they will leave high school without job preparation and with no good prospects of attending college and gaining an economically-valuable degree. And even for those who do go on to college, few understand that they will be expected to work to obtain a degree, and then obtain a job after college. High schools allow most to underachieve, to learn a minimum amount and move on. Students in high school are expected to be self-motivated and not to require so much close supervision and individual attention. Some, perhaps most, are not ready for this. Physically, they are mature; mentally, not so much.

College has proven to be an economic trap for too many middle class students. Easy loans provide income to colleges, but meaningful education isn’t provided in return that will allow the student to pay off the loan. Statistics that show how much more a college graduate is likely to make during a career versus what a non-graduate is likely to earn are misleading. For every highly paid engineer or financier or business MBA, there are dozens of graduates in women’s studies or ethnic studies or philosophy or art who can’t find good jobs.

The changes in college prospects and the difficulty of finding a job means that graduates of a high school are going to have to leave the sheltered school environment and move into employment that they aren’t prepared for. They have little idea of what is expected of them. Many will begin their work career in the fast food industry because such jobs are plentiful, have a high turnover rate, and require no experience in order to be hired. Most will be fired at least once before they begin to understand hard economic truth, that employers expect more of them than school required. Employers expect them to be at work on time, to do the work assigned, and to be cooperative and friendly to customers and other staff. It may well take 5 years or more before they understand this. While the graduate is learning this, he/she may be forced by economics to remain at home with parents. Entry level jobs simply don’t pay enough for an independent life. Many recent graduates find themselves in this condition.

Not all degrees are equal. A degree in engineering, mathematics, science, accounting, or business is likely to pay well, and for some will pay very well. Even now, in a severe recession, many jobs that require this type of education either go unfilled or are filled by foreigners. Intel, for example, has been unable to hire local graduates for skilled positions even though such are given preference in employment. Skilled, educated, employees simply aren’t available. Lots of college graduates; not many engineers or scientists or mathematicians.

A degree in humanities, art, or social services or even education may provide self-satisfaction, but these are easier to obtain and require much less effort than that engineering degree to obtain. They aren’t likely to impress employers.

So what should a young person understand about employment? Why are employers prepared to pay them to do a job?

Simply put, employers exploit labor. There’s a trade-off, of course.

If the employee is prepared to market his own skills, say by going into business for himself, he can sell his labor and acquired knowledge/experience for more money than he will get from an employer.
But if he doesn’t work, there is no income. Sick? Too bad. Feel like taking a vacation? Your business stops and potential customers will turn to another service provider. Plus the process of acquiring knowledge and experience takes time, and most often tools and equipment must be bought. For some jobs, a van to house the tools and equipment will suffice, but then there are fuel and maintenance costs and time traveling to and from a job that cannot be billed to a customer. If the tools and vehicle are financed, then finance charges, insurance, taxes, and consumables must also be accounted for. For others, auto mechanics for example, a shop is required. This is often leased so there’s the cost of the lease to pay. And of course, if one operates a business, it’s necessary to account for income and expenses for tax purposes. Doing this yourself takes time that can’t be sold to a customer and a specialized knowledge that can’t be acquired short of full-time work in the field. All of this goes under the general heading of “overhead”. Self employed people need to account for and pay all these expenses…and more.

The plumber that charges $100 for a house call is not making $100 profit for himself. He may, after all the expenses are taken out, be making only a bit more than he would have made working for an employer.

The trade off for the employee who works for someone else is a guaranteed market for their labor and skills. A job enables someone to acquire knowledge and experience that can later be applied to self-employment, should the employee choose to go into self-employment.

Employers, entrepreneurs, can make a profit and if they have a lot of employees, they can make quite a substantial profit. They also take substantial risks. They hope to sell the fruits of the employee’s work, but if they can’t do that, they must still pay the employee. Inability to make hard choices when that employee labor can’t be sold leads to bankruptcy.

Employers hire employees because they expect to make a profit from their labor. That’s the part that graduates and beginning employees don’t understand; the employer isn’t just paying them for their time, because that time cannot be resold for a profit. Instead, they plan on selling the results of that time, goods or services produced by the employee. The lazy employee, the unwilling one who argues before undertaking a task, or the one who can’t be productive for whatever reason will be fired or will be the first to be laid off.

Such a simple concept, and so obvious. And virtually no beginning employee, and many experienced ones, can’t really state this. If they know it, it’s a subconscious kind of knowledge.

The employee who quickly learns this basic truth and applies it is likely to be promoted. Employers often have better jobs available and they select motivated efficient employees, the ones who produce the most profit for the least amount of employer effort in training and supervision, to fill those better jobs. They also are willing to pay those employees more.

If the job is a dead end with no hope of advancement, the employee who has learned the above truth is better equipped to get another job.

Some prospective employees depend on the resumé to convince an employer that he/she should hire them. A simple understanding of the basic truth above, and the willingness to state it to an employer and then to apply it after becoming employed, will give any employee an enormous advantage over his colleagues.

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