Question

Policy-Related Questions

1. What do the human capital and signalling explanations, identified in the theoretically-oriented questions, imply for government policy towards higher education?

2. How do you think that such explanations might have influenced recent changes in the financing of higher education in the UK?

Answer 1

One of the oldest debates in the texts on the economics of education is between the pertinence of human capital & signalling concepts of education. Whilst the human capital concept asserts that education increases pay thru raising productivity, the signalling concept asserts that education increases pay just because levels of education is a signal of the workers capability ( not observed by the employer).

I think both concepts have their place & it does not have to essentially be either–or. Definitely, at lower levels of schooling, education improves human capital. Literacy, writing, math, problem-solving, critical thinking are some of the fundamental skills, one attains at school level. Additionally, personality & character building are essential facets of school-life which has to be taken into account.

But, at post -secondary educational levels, productivity of the education gets a decline. Even then, not all post higher secondary education is identical. Some degrees are essential in giving specific training to have greater productivity. For professions like scientists, teaching, and medicine, a degree is quite vital. A big portion of this specialized education depends upon practice based studies. To state its just a signal would weaken the significance of such a degree, that passes on very specific competencies.

However, for other degrees, specially commerce/ social sciences associated domains, the pertinence of signalling appears to override human capital in the job market.

Signalling impact & human capital impact co-exist in the labor market. Nations with high rates of university education usually have been observed to have greater levels of innovation & productivity growth. Thus, there’s a justification for the governmental subsidization of higher education

I suggest that government should instead reduce the prices of higher education, to render it more accessible to a much bigger populace. More populace earning higher degrees will push the firms to engage in assessing the human capital / competencies possessed by a person, than just depending on signalling impact of higher education. The government should also provide many vocational training programs  ( equivalent to a degree), to make sure that an average person is equipped with needed vocational/ professional competencies relating to a particular field of work.