Wage Determination Model

WAGE DETERMINATION MODEL
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1.0 Introduction
The human capital theory is an economic framework that emphasizes the importance of investing in education, training, and other forms of human capital as a means of increasing productivity and economic growth. According to this theory, individuals and societies can improve their economic outcomes by investing in the development of human capital, which refers to the knowledge, skills, and abilities that people acquire through education, training, and experience. Human capital is seen as a key determinant of wages, as individuals with higher levels of human capital tend to be more productive and earn higher wages. In addition to individual benefits, investing in human capital is also thought to have positive spillover effects for society, as it can lead to innovation, higher economic growth, and improved living standards. The human capital theory has been influential in shaping policies related to education and training, as well as labor market policies aimed at reducing inequality and improving economic outcomes for individuals and societies. In this report, a wage determination model based on human capital theory is developed and evaluated.
2.0 Wage Determination Model
The proposed wage determination model will consider five key variables that play a role in shaping access to and development of human capital. First, the individual age will be considered an essential part of the model. Age is an important factor in human capital theory as it represents the accumulation of experience and knowledge over time, which can increase productivity and wages. Research suggests that as individuals get older, their wages tend to increase due to increased experience and skills (Strober 1990). Second, the model will include the education level of an individual. Education is a significant factor in human capital theory as it increases an individual's skills, knowledge, and productivity. Research has consistently shown that education is positively correlated with wages (Nafukho, Hairston, and Brooks 2004). Third, the model will consider an individual’s disability status as it has been shown to play a role in determining access to earning opportunities. It is hypothesized that disabled workers may experience wage discrimination in the labor market (Strober 1990). Thus, this variable could be included to capture any wage penalty associated with disability status. Fourth, the model will consider the ethnicity of the participant. Like disability, Ethnicity affects wages through discrimination and differences in human capital. Research suggests that ethnic minorities face wage discrimination in the labor market, which can lead to lower wages (Leping and Toomet 2008). In the same vein, Sex is an important factor in human capital theory as it can affect labor market outcomes through differences in education, experience, and discrimination. Research suggests that women earn less than men, even after controlling for human capital factors such as education and experience (Blau & Kahn, 2017).
The model would hypothesize that the individual hourly pay is likely to be determined by age, education level, disability status, ethnicity, and gender. The influence of each variable withi...