Question

In his 2015 State of the Union address to Congress, President Obama requested that congress create legislation to provide funds to pay for all Americans to attend two years of community college or trade school.

Now assume that such legislation was passed (point of fact, no such bill was passed) and now all Americans can go to college for two years for free.

What impact would this have on the output potential of typical workers? How many more people will actually go to college? What will be the impact on living standards for a typical worker?

Answer 1

As the workers become more qualified with gaining of knowlwdge and education through the subsidy program of the government, there will be human capital formation in the economy. Formation of human capital will increase productivity of the nation and as productivity of the economy increases, the output potential of typical workers will increase in the economy. Provision of subsidy on goin to college will attract more and more people to go to college and thus more people will actually go to college.

As ther worker becomes qualified, the chances of future increase in the wage rate will increase and the earning potential of the individual will also increase. This increase in the earning potential will increase living standard for a typical worker.