Haley is at a staff meeting. She’s worried that she hasn’t had enough good ideas lately. Her fear is that this will lead her boss to believe that she isn’t working hard on behalf of the company. Haley signals that she’s a good worker by suggesting that Gloria sell a family recipe to the company (NERP). Gloria has long held the recipe secret. The recipe is an example of private technological knowledge. The recipe is valuable to Gloria because of the family tradition. The recipe is valuable to NERP because it could give them an edge in the lifestyle industry. Will Gloria sell? (Note: Jay also makes a fantastic joke about the value of a bachelor’s degree that can be used for discussion on human capital)
Alex is practicing her college interview for Princeton in the mirror when Haley comes in to style her hair. Princeton is an Ivy League school that is very prestigious and gets a lot of applications. Princeton does not know which applicants it should let in so it screens them. Screening is an action taken by an uninformed party in a situation characterized by adverse selection. There are many things that colleges do to screen applicants. They require high school transcripts, a certain GPA, test scores and they conduct an interview. When someone is interviewed, it’s an opportunity for them to send a signal. A signal is an action taken by an informed party in a situation characterized by adverse selection. Alex wants to signal to Princeton that she’s a good candidate for admission into the university. Haley shares her thoughts about the message that Alex is actually sending.
Haley auditions for work on a cruise ship. She didn’t get the job but why? Is it because she’s not in the right sorority or was it because she wasn’t as skilled as the others auditioning. If she was equally skilled and not selected because of some other characteristics (like not being in a sorority) then she would have been discriminated against.
Luke has decided that he’s ready for college and meets with a community college admissions officer. He asks all the important questions like “how hard is it?” and gets some tough but realistic answers. The admissions officers tells him that after years of hard work, he’ll graduate and be qualified for an entry level job and steadily get promoted until, around age 45, he can expect a 3 bedroom house. Luke compares his current situation with this potential future and decides that maybe college isn’t right for him. But is that the correct counterfactual that he should use for this decision?
The Dunphy girls both have new boyfriends. Phil and Claire have them over for lunch to get to know them better. Haley’s new boyfriend is an astrophysicist. Alex’s new boyfriend is a firefighter. Astrophysicists require years of high level education. Fire fighters are skilled and well trained but the training they go through doesn’t take quite as long. Who has the most human capital? (Meanwhile, Claire and Phil are trying to determine whether or not Claire is smarter than Phil, Haley’s boyfriend is upset because his theory has been debunked, and Like is stirring the pot with trivia questions. He even references another popular clip in economics.).
Lily has the tough teacher but Cam and Mitch just learned of an opening in the nice teacher’s class. In this scene, they approach Ms. Plank about transferring Lily into Ms. Sparrow’s classroom. Education is one of the markets where consumers have little choice. Some argue that this creates inefficiencies in the market. Others argue that education consumers may not have enough information to make optimal decisions so giving consumers more choice would not necessarily lead to an improvement in efficiency. This sort of problem is discussed at many levels in education – from school choice to book choice.
Haley, Phil and Luke are participating in a psychology study. Luke has convinced Phil that they should push the big red button that says “DO NOT PUSH” but Haley stops them. She says one in a million college drop outs go on to become Steve Jobs. The other 99 thousand don’t (her math is a little off). She recently dropped out of college and is having a crisis. This demonstrates several economic concepts including the importance of human capital and time inconsistency. Human capital comes from going to college but Phil reminds her that there are other sources of human capital. Time inconsistency occurs when you regret a decision in the past.
Alex is graduating from high school soon so Phil, Claire and the kids are visiting Cal Tech. Claire thinks Cal Tech is the perfect place for Alex but she’ll find out soon that she and Alex have different preferences. College is one of the ways that we build human capital. As we learn more things, we become more productive and our labor is more valuable. Alex is already really bright and loves academics so college is a good fit to set her up for doing impressive things in the future.
Claire wants a great school that’s close. Alex wants a great school that’s far away. We also learn that Cal Tech has 5 Nobel Laureates on staff, suggesting that Cal Tech itself has a lot of human capital, making it a highly productive college.
Alex learns why Cal Tech might be a better choice for her than an East Coast school. What is more important: the quality of the program or proximity to home? Choices are tough and everything has a cost. Here’s Alex’s current dilemma: stay close to home and attend the best program in the country OR go to a college on the east coast with a weaker program.
Alex has landed a dream internship but it’s really high stakes and stressful. Meanwhile, Phil has a tough choice to make in a board game. Every time we choose to do something, we are also choosing NOT to do something else. Does Alex really want the internship? What is its opportunity cost? Also, what should Phil do?
Jay takes Joe out to the driving range and discovers that Joe is a natural. Joe’s natural skill is a form of human capital that gives him the potential to earn a large salary in the future. Human capital is often acquired through years of training, education and hard work. But sometimes, luck gives some people an edge over others. If Joe works hard and practices, he could follow the path of other young golfers with natural talent like Tiger Woods and Lexi Thompson. Jay wants to do all he can to make that happen.