The complex relationship between education and graduate outcomes

It is widely assumed that higher education is, largely, preparation for work, and it is primarily education (and not social background) that determines success in the labour market. The corresponding policy assumption is that investing in education as human capital contributes to national aggregate economic growth. Education creates more productive workers who in turn add value in the workplace. The additional value is captured in the higher pay they receive. Individual enrichment through education, aggregated together, adds up to economic and social development through education. This is basic human capital theory, which frames policy thinking about higher education the world over.

It does not work out like that. The real economic and social relationship between education and work is much more complex, fragmented and messy than human capital theory suggests. But the dominance of human capital theory stops us thinking more effectively about the relationship between education and work – and it has unduly narrowed the purposes and work of higher education institutions.

Professor Marginson unpicks the core assumptions at the base of human capital theory. He argues that human capital theory ‘fails the test of realism’ due to weaknesses of method. This has led to the flawed and narrow understanding of the relationship between education and work. Drawing on recent research on social stratification, work, earnings and education, Professor Marginson highlights the specific gaps in our knowledge about the education/work relationship that human capital theory has created. For example, human capital theory imposes a single linear pathway on the complex and multiple passages between education and work. It cannot explain how education augments productivity, or why salaries have become more unequal in many countries. Nor does it account for the role of social status which is often as powerful a driver of investment in education as is earnings.

The higher earnings of graduates of elite universities are due to a mix of factors, and these factors vary over time and between countries and fields of study. Professor Marginson argues that foundational human capital theory overlooked the power of family income and social and cultural capital in determining access to elite higher education and elite professional employment, and despite more recent attempts by human capital economists to address those issues, they remain ‘add-ons’, largely external to the core of a theory which in essence is unchanged. The article concludes with elements that could form the basis of an alternative explanation of higher education, work, incomes, income distribution and social outcomes.

Limitations of human capital theory is published in Studies in Higher Education.