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YeonKyung Lee

Professor name

ECON 335

05/16/2014

Cost Benefit Analysis on pursuing a career in the United States vs in South Korea

1. Background information

I’m a senior student majoring in Economics at Missouri University of Science and

Technology. I was born in South Korea and came to the United States two years ago as a one

year exchange student. I’m on a dual degree program so will be received a bachelor’s degree in

Business with a minor in Culture and Tourism in Korea and a bachelor’s degree in Economics

from MS&T. Since I am graduating in May, there are many options and paths for my future

career. A biggest decision that I have to make is whether I want to pursue my career in America

or Korea. Two countries are different in terms of employment opportunity, income, spending,

and environment. In this paper, I will analyze what costs and benefits that pursuing career in

America has compare to Korea, monetize costs and benefits for each option, perform sensitivity

analysis, and propose economic decision based on the net present value.

2. 9 Steps in CBA

o Step 1. Specify the set of alternative project

The main set of project will be pursuing career in finance related field in the

United States. The alternative will be pursuing career in finance related field in South

Korea.

o Step 2. Decide whose benefits and costs count (standing)

Since major benefits and costs affect myself, standing of this project will be individual.

o Step 3. Identify the impact categories, catalogue them, and select measurement

indicators

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1) Number of job openings in Finance – Identifying a number of job opportunities

The size of employment market would be an important measure to identify a

chance of getting a job. I chose number of job openings in Finance field as an indicator.

In the United States, the Bureau of Labor Statistics separated industries as following:

Construction, Education and Health Services, Financial Activities, Information, Leisure

and Hospitality, Manufacturing, Natural Resources and Mining, Other Services,

Professional and Business Services, Trade, Transportation, and Utilities, Contacts in BLS.

The number of job openings in 2013 in Financial Activities was 3,215,000. (Bereau of

Labor Statistics)

Job openings in Financial Activities: 3,215,000(9.02% increased compare to 2012)

In South Korea, Ministry of Employment and Labor Statistics separated industries

as following: Management, Business and Accounting, Finance and Insurance, Education,

Public Service, Medical Industry, Religion, Art and Culture, Transportation, Sales,

Security, Leisure and Sport, Food Industry, Construction, Mechanical Industry, Chemical

Industry, Textile Industry, IT Industry, Food Processing Industry, and Farming Industry.

The number of job openings in Finance and Insurance was 9,122 in 2013. (Report on the

occupational labor force survey at establishments)

Job openings in Finance and Insurance: 9,122(33.7% increased compare to 2012)

As a result, the United States has bigger number of job openings and opportunities in

Finance field.

2) Unemployment Rate – Analyzing labor market condition

Unemployment Rate is a most used indicator to capture the overall picture of a

labor market condition. It is calculated as a percentage by dividing the number of

unemployed individuals by all individuals in labor force. (Wikipedia - Unemployment)

According to the recent paper from U.S. department of labor, the unemployment

rate from March 2013 to March 2014 is unchanged at 6.7 percent. (Bereau of Labor

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Statistics) On the other hand, according to the Ministry of Employment and Labor in

Korea, unemployment rate for 2013 was 3.2 percent. (Employment and Labor Statistics)

3) Income – Analyzing future monetary benefits

Income is an important indicator to measure monetary benefits that I can gain

from a job. In this paper, I will present all prices in US Dollar term and convert South

Korean Won into US Dollar with a standard of the most recent currency rate.

According to the Bureau of Labor Statistics, average hourly earnings and weekly

hours of all employees in Financial Activities is considered as $30.64 and 37.3 hours

(March 2014). This leads the annual income of $54,857.856. On the other hand, average

monthly earnings of all employees in Finance and Insurance is $3,361.26(3,490,000Won,

February 2014). This leads the annual income of $40,335.12.

Moreover, I would like to present the annual income of entry-level job as it is

hard to get a high income from first. According to a 2010 statistics, the annual income of

entry-level job in finance and business field in the United States is $40,200.

(CasserlyMeghan) On the other hand, the annual income of entry-level job in social

science field in Korea is $22,940.7(23,840,000Won) according to the 2011 statistics.

(Employment Survey) In this paper, I will assume that the first 5 year’s income is entry-

level value and rest of the period’s income is average value.

4) Spending – Analyzing future monetary cost

Spending is an important indicator to measure future monetary cost. I would like

to represent data for average spending in the age group 25-34. According to the statistics

in 2011, average expenditure in the United States is $49,544. This data is based on

20,112,000 consumer units and includes Food($6,513), Alcoholic Beverages($564),

Housing($17,157), Apparel and services($2,061), Transportation($9,724), Health

Care($2,047), Insurance($5,313), etc. (StatisticsU.S.)

According to 2008 statistics, monthly average expenditure for twenties to thirties

in Korea is $1,417(1,530,000Won). That leads the annual expenditure of $17,004.

Monthly average expenditure for thirties in Korea is $2,170.27 (2,256,000Won) and

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annual expenditure is $26,043.24. Expenditure categories are similar with the one from

the United States, but exact amount is not reveled in statistics. (InstituteSeoul)

4) External factors – Identifying obstacles of getting a job

As a foreigner in the United States, immigration process is an important factor to

consider. First, there is a possibility of not getting a permission to work in the United

States. United States Citizenship and Immigration Services (USCIS) provides H1-B

visas to people who want to work in United States. They offer 20,000 visas for people

who have master or higher degree in US colleges and 65,000 visas for all applicants. If

they receive more application than limited number of visa, they randomly select

applicants. H1B visa is valid for three years and can extend it for one time for another

three years. According to USCIS, they have received 124,000 H1-B Visa applications

for fiscal year 2014 and 172,500 applications for fiscal year 2015. Considering my

situation, it is highly likely that I have less than 50% change of getting the visa. A

number of applicant can be changed each year depends on the US economy. Moreover,

it is considered that there will be additional spending to process immigration works

including processing fee and attorney fee. A processing fee for H-1B visa is $325 in

2014 (USCIS) and attorney fee is vary from $1,600 to $2,200. I will assume that an

attorney fee will cost $1,900 which is the average value. After working in the United

States with H1B visa for six years, applying for a permanent resident is the only way to

pursue the career. It is considered that it usually takes $10,000 for an attorney fee.

Below tables are a summary of the data and list of cost and benefit for each

alternative.

Table 1. Summary of data

United States South Korea

Job openings 3,215,000(2013) 9.122(2013)

Unemployment Rate 6.7% (2013) 3.2% (2013)

Average annual Income $54,857 (March 2014) $40,335.12 (Febuary 2014)

Average annual income $40,200 (2010) $22,940 (2011)

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for entry-level job

Average annual

expenditure

$49,544 (2011) $17,004 for 20s

$26,043 for 30s (2008)

Immigration processing

fee

$325 + $1,600~$2,200 None

Table 2. List of cost and benefit for pursuing career in the United States

Cost Benefit

- Lower annual average income

- Higher annual expenditure

- Risk and additional cost in

immigration processing

- Living without family

- More job opportunities

- Broader option to select a job

- Higher income for entry-level job

- Better work environment

Table 3. List of cost and benefit for pursuing career in South Korea

Cost Benefit

- Less job opportunities

- Less option to select a job

- Lower income for entry-level job

- Less benefits and poor work

environment

- Higher average annual income

- Lower annual expenditure

- Living with family

o Step 4. Predict the impacts quantitatively over the life of the project

I’d like to set the life of the project as 10 years(from 2015 to 2024) considering

that average income and expenditure have a limitation to reflect whole lifetime.

To measure benefit and cost with average income and expenditure, I will reflect

the inflation rate over the lifetime of the project. Moreover, I will assume that the labor

market situation(number of job openings, unemployment rate, and a number of applicants

for H1B visa) when I look for a job is similar with present as it is a near future.

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According to Trade Economics and their analysis, inflation rate of the United

States is 1.5% in March 2014. The prediction of 2015 is 3%, 2020 is 1.58%, 2030 is

1.83%. I will assume that the first 5 years of project’s inflation rate is 3% and rest of

period’s rate is 1.58%. On the other hand, inflation rate of South Korea is 1.3% in March

2014. The prediction of 2015 is 1.1%, 2020 is 3.78%, and 2030 is 3.83%. With this data,

I will assume that the first 5 years of project’s inflation rate is 1.1% and rest of period’s

rate is 3.78%. (EconomicsTrading)

Table 4. Prediction and assumption of the inflation rate for monetization

Inflation Rate United States(Alternative 1) South Korea(Alternative 2)

2015-2019 3% 1.1%

2020-2024 1.58% 3.78%

o Step 5-7. Monetize all impacts, Discount benefits and costs to obtain present values,

and Compute the net present value of each alternative

Discount rate of 3.5% is used which is the normal value for the private projects.

Table 5. Deriving NPV from Alternative 1 (Pursuing career in the United States)

Cost Benefit Net

Benefit

($)

(B-C)

Real

Net

Benefit

($)

Present

Value

($)

Time

period

(Year)

Consumption

($)

Immigration

Processing

Fee ($)

Income

($)

2015 49,544 2,225 40,200 -11,569 -11,916 -11,513

2016 49,544 40,200 -9,344 -9,624 -8,984

2017 49,544 40,200 -9,344 -9,624 -8,681

2018 49,544 2,225 40,200 -11,569 -11,916 -10,384

2019 49,544 40,200 -9,344 -9,624 -8,103

2020 49,544 54,857 5,313 5,397 4,390

2021 49,544 10,000 54,857 -4,687 -4,761 -3,742

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2022 49,544 54,857 5,313 5,397 4,099

2023 49,544 54,857 5,313 5,397 3,960

2024 49,544 54,857 5,313 5,397 3,826

NPV -35,133

Table 6. Deriving NPV from Alternative 2 (Pursuing career in South Korea)

Time

period

(Year)

Cost Benefit Net Benefit

($)

(B-C)

Real

Net Benefit

($)

Consumption

($)

Income

($)

Present

Value ($)

2015 26,043 22,940 -3,103 -3,137 -3,031

2016 26,043 22,940 -3,103 -3,137 -2,929

2017 26,043 22,940 -3,103 -3,137 -2,830

2018 26,043 22,940 -3,103 -3,137 -2,734

2019 26,043 22,940 -3,103 -3,137 -2,641

2020 26,043 40,335 14,292 14,832 12,066

2021 26,043 40,335 14,292 14,832 11,658

2022 26,043 40,335 14,292 14,832 11,264

2023 26,043 40,335 14,292 14,832 10,883

2024 26,043 40,335 14,292 14,832 10,515

NPV 42,221

o Step 8. Perform Sensitivity Analysis

Sensitivity Analysis is performed based on different discount rate. The result is

same with a below graph.

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The IRR of pursuing a career in South Korea was 36%. On the other hand, I couldn’t

derive the IRR of pursuing a career in the United States as Net Present Values are negative until

the discount rate reaches 100% which is unrealistic.

Moreover, an Expected Value Analysis is performed based on a possibility of getting a

H1B visa. I multiplied benefits with the possibility of 45% which is an average possibility

between year 2013-2014 and 2014-2015. The result is same as below chart.

Time period

(Year)

Expected Value Analysis

Total Benefits

Real Total

Benefits

Benefit Cost

2015 18,090.0 51,769 -$33,679.0 -34689.37

2016 18,090.0 49,544 -$31,454.0 -32397.62

($40)

($30)

($20)

($10)

$0

$10

$20

$30

$40

$50

1% 11% 21% 31% 41% 51% 61% 71% 81% 91%

NP

V

Tho

usa

nd

s

Discount Rate

Sensitivity Analysis on Discount Rate

Alternative 1

Alternative 2

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2017 18,090.0 49,544 -$31,454.0 -32397.62

2018 18,090.0 51,769 -$33,679.0 -34689.37

2019 18,090.0 49,544 -$31,454.0 -32397.62

2020 24,685.7 49,544 -$24,858.4 -25251.11193

2021 24,685.7 59,544 -$34,858.4 -35409.11193

2022 24,685.7 49,544 -$24,858.4 -25251.11193

2023 24,685.7 49,544 -$24,858.4 -25251.11193

2024 24,685.7 49,544 -$24,858.4 -25251.11193

NPV -254,465.87

The NPV is -$254,465.87 which is much lower than -$35,133.

o Step 9. Recommendation

It is strongly recommend that choosing a career in South Korea in monetary term.

3. Limitations

There are several limitations with this research. First, my personal spending and income

might be different from average value. Also, inflation rate and currency rate in future might be

different from what I expected. Statistics from different countries might use different measure

method and there were some costs and benefits which couldn’t be monetized. Last, NPV can be

changed depends on a project’s lifetime.

Works Cited

Bereau of Labor Statistics. April 2014 <http://www.bls.gov/>.

Casserly, Meghan. Forbes - Top-Paying Entry-Level Jobs for College Grads. 01 06 2010. April

2014 <http://www.forbes.com/2010/06/01/top-paying-jobs-college-graduates-entry-level-forbes-

woman-leadership-careers.html>.

Employment and Labor Statistics. April 2014 <http://laborstat.molab.go.kr/>.

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Employment Survey. 2011. April 2014 <http://survey.keis.or.kr/ENCOMAM0000N.do>.

Institute, Seoul Development. A Study on Income and Consuption Characteristics of Households

in Seoul. Seoul, South Korea: Kim Bum Sik, Cho Dal Ho, 2010.

"Report on the occupational labor force survey at establishments." 2013.

Statistics, U.S. Bureau of Labor. "Consumer Expenditures in 2012." 2014.

USCIS. April 2014 <http://www.uscis.gov/working-united-states/temporary-workers/h-1b-

specialty-occupations-and-fashion-models/h-1b-fiscal-year-fy-2015-cap-season>.

Wikipedia - Employment-to-population ratio. April 2014

<http://en.wikipedia.org/wiki/Employment_rate>.

Wikipedia - Unemployment. April 2014 <http://en.wikipedia.org/wiki/Unemployment>.