Question

Suppose that changes in society decrease the probability that you will experience discrimination in the labor market. As a result, does the net present value of an investment in human capital increase, decrease, or remain the same?

-increase

-decrease

-does not change

Answer 1

Answer: increase

Discrimination means partiality or biasness. If it is there in the labor market, few examples are as below:

#) women are getting lower wages compare to men for the same type of job.

#) men are recruited more than women although this is a general job.

Discrimination reduces productivity of labors, which turns into lower returns from them. Therefore, if discrimination decreases labors would be more productive and they will give better returns (like an increase in output).

Net present value (NPV) is the difference of present value of future cash flows (returns of workers) and initial investment. Since return increases, NPV would also be increased.