Question

1. Research shows that after-school jobs are highly correlated with decreases in grade point averages. Those who work 1 to 10 hours get a 3.0 GPA and those who work 21 hours have a 2.7 GPA. Higher GPAs are, however, highly-correlated with higher lifetime earnings. Assume that a person earns $8,000 per year for working part-time in college and that the return to a 0.1 increase in GPA gives a 10 percent increase in one's lifetime earnings with a present value of $80,000.
   • What would be the argument for working rather than studying harder?
   • Is the assumption that there is a trade-off between working and grades reasonable?

Answer 1

(a) One should study harder rather than doing part-time work. Considering the cost-benefit analysis, studying harder will benefit more in the future. The opportunity cost of working is $80,000 and the benefit is $32,000 of present income. Working will add benefits o the present income but will lead to a reduction in the GPA. A lower GPA is highly correlated with a lower lifetime income. If one concentrates on study rather than working, he will obtain a higher GPA which will lead to higher income lifetime income.

(b) There is a relationship between working and obtaining GPA. Studying harder will help to secure a higher GPA. Working takes time form study. Spending more time on study rather than working leads to higher grades. This situation may vary from student to student. There are many students who obtain higher grades by giving less time to study.

If someone does work rather than studying harder, then he might not be able to obtain higher grades. Thus, there is a trade-off between working and obtaining grades.