https://www.sciencedirect.com/topics/social-sciences/human-capital-theory
Diversity, Democracy, and Social Justice in Education
Chazz Robinson, Raechele Pope, in International Encyclopedia of Education(Fourth
Edition), 2023
Human capital in the knowledge economy
To fully analyze the knowledge economy a careful look at the theoretical
underpinnings in necessary. The theoretical underpinnings of the knowledge
economy highlight several theories; however, human capital theory appears to be
driving the main discourse on the knowledge economy within the US and globally,
with top organizations like the World Bank and the OECD using it in tandem with
the knowledge economy to shape practical uses within society (Takayama,
2013; Weber, 2011). Harvard economist Claudia Goldin (2016) explains that the
human capital definition centers on the idea that investments in people, such as
education, increase workers' productivity and skillsets. This theory relates to the
knowledge economy because it highlights the common assertion that the more
educated a person becomes the more, they will be desired for their specific
knowledge and increase their human capital. Korres (2008) argued that, “a lack of
investment in human capital … prevents poor countries from catching up with rich
ones. Educational attainment and public spending on education are correlated
positively to economic growth” (p. 714). This connection directly places economic
value on knowledge obtained. The connection between human capital theory and the
knowledge economy becomes more evident when exploring the assumptions within
the theory of human capital.
Human capital theory assumes that investment in education is necessary to acquire
skills and training which, in turn, will increase individual capital (Blundell et al.,
1999). Tan (2014) adds,
These knowledges and skills will increase his or her productivity in the workplace.
This increased productivity will bring a higher salary to the individual since the wage
of a person, in the ideal labor market, is determined by the person's productivity.
Therefore, people would invest in education up to the point where the private
benefits from education are equal to the private cost (p. 413).
This conceptualization of the knowledge economy is being globalized, with
organizations indicating that human capital is accumulated by investing in education
so that individuals can compete in the new society and poverty can be ended (World
Bank, 2018). While the World Bank has aligned their organizational goals around the
knowledge economy and has developed a metric system to examine how countries
are meeting their practical goals in the knowledge economy, they acknowledge that
before and even more so during COVID season, low-income societies, and gender
minoritized people are struggling within the knowledge economy (World Bank,
2018). While the World Bank made references to gender minoritized individuals
such as women, missing were also the experiences of sexual minoritized people.
Similar, there have been reports that students in the United States who identify as
low income, international, and/or racially minoritized have been most impacted by
COVID restrictions (Means and Neisler, 2021). These initial findings could explain
why knowledge economy and its theoretical underpinnings to human capital theory
both have been criticized for lacking a cultural perspective on how people navigate
the knowledge economy (Weber, 2011). Connecting this critique to today's time
shows the inconsistences in the knowledge economy regarding minority groups.
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Higher Education Market
Felix Maringe, in International Encyclopedia of the Social & Behavioral Sciences
(Second Edition), 2015
The Investment Theory of HE
Human Capital Theory (e.g., Schultz, 1961; Becker, 1993; Mincer, 1974) presents HE
as both a public and private investment decision for governments and its people. As a
public investment, the fundamental argument is that investing in education leads to
economic growth through increased productivity, social stability, and healthier
lifestyles. On the other hand, as a private investment choice, investing in education
leads to increased lifetime earnings for those with more years of schooling; access to
better paying jobs; reduced time spent in the unemployment market; and speedier
transitions to enhanced career prospects (Wahrenburg and Weldi, 2007). In the
context of contemporary HE markets, evidence does not always lend full support to
these claims. For example, there are imbalances and inconsistencies related to
returns to investment in HE. Psacharopoulos (1994), for example, identifies such
imbalances and inconsistencies in areas of gender, degrees, and subjects studied, and
levels of qualifications obtained among others. In addition, the employment market
does not always behave in a fair way. For example, although there is some evidence
which shows that those with higher qualifications and those who have spent more
years in education tend to accumulate higher earnings across the life course, there is
much less evidence which shows that investing in a highly priced degree program
offers higher financial returns to the graduates. Financial returns in the professions
are more closely related to the reputation of the university attended. For the same
job, a Harvard graduate is likely to start off at a higher salary than one from a less
well known university. In addition, graduates from community colleges in the USA
tend to have limited career entry opportunities compared to their counterparts from
the more reputable 4-year degree offering institutions. Community college graduates
also tend to earn lower aggregate salaries over the life course compared to graduates
from other more prestigious universities (see, e.g., Nagler, 2007). Others have
concluded that institutions in the lower ranks of prestige and reputation in HE
markets only serve to reproduce social and economic inequalities in the society
(e.g., Brint and karabel, 1989; Dougherty, 1994; Karabel, 1986; Weis, 1985).
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The Political Economy of Adult Education
G. Rees, in International Encyclopedia of Education (Third Edition), 2010
Human Capital in the KBE
Theories of the KBE adapt HCT to what are construed as the essential characteristics
of contemporary economic life. On this view, the globalization of trade and
investment has intensified competitive pressures, especially for those national
economies which are unable to compete on the basis of low-cost production. In these
economies, competitiveness can be maintained only by enhancing the productivity of
capital and labor. This implies continuous innovation, developing new goods and
services and more effective processes for producing, marketing and distributing
them, and applying the most efficient patterns of work organization. Hence, the
creation and – critically – the application in production of new forms of knowledge
become the key factor in shaping the prosperity of individual enterprises and
economic development more widely.
This valorization of knowledge production and innovation also has critical
implications for the operation of labor markets. The KBE offers expanding
opportunities for the so-called knowledge workers who have the very high-level skills
required to operate in professional, managerial, scientific, and creative jobs in the
upper echelons of the new occupational hierarchy. Equally, even workers who do not
attain the very highest occupational levels require, at a minimum, high-quality
general education and cutting-edge intermediate skills, so that they can engage
actively in driving up productivity.
However, the corollary of these new occupational opportunities is the sharp decrease
in unskilled or partly skilled occupations, which formerly comprised significant
segments of the workforce. Some of these occupations have been relocated to the
low-cost economies, reflecting patterns of globalization more widely. Others have
simply disappeared because of changes in the industrial structure and
transformations in product and process technologies. The implication is, therefore,
that, in the KBE, employment opportunities for those individuals who do not have
significant amounts of human capital are bleak.
Education and Inequality*
J. Blanden, S. Machin, in International Encyclopedia of Education (Third Edition),
2010
Causality
The empirical study of education-related earnings differentials was developed in
tandem with human capital theory (see inter alia Becker, 1964); the idea is that
educational attainment has a casual impact on labor market outcomes through
improved productivity. Of course, the fact that more educated workers tend be more
productive does not prove that education is the cause of their higher productivity.
Indeed, many commentators have noted that interpretation of positive earnings
differentials for the more educated as a causal impact of education may not be
correct due to differential selection into HE by more able individuals and those from
higher-income families. As such, it may be that higher-ability/income people select
into education more so that the positive coefficient on education in a wage equation
is actually upward biased. The existence of ability bias of this form has been studied
in detail, from the highly influential work of Griliches (1977) onward, and confirmed
in research since. Empirically, it is the case that the education coefficient falls once
ability proxies are included (this is because ability is positively correlated with both
earnings and education).
Conversely, one may think that the education variable included in the earnings
function may not be measured perfectly. This causes a downward bias in
the estimated coefficient of education variables in earnings equations. Card (1999,
2001) considers the impact of ability bias and measurement error on estimated
returns to education. In particular, Card carefully considers the interpretation
of instrumental variables estimates, which are designed to purge endogeneity and
measurement error bias.
In the recent literature addressing these issues, a number of what Card (2001) refers
to as supply-side instruments are used to identify the causal impact of education,
where researchers try and ensure that variations in education are driven by factors
that do not directly impact on wages. Estimated returns from this approach are
above the basic uncorrected differentials. (Examples are changes in
compulsory school leaving laws and differences in the accessibility of schools.
Formally, these enter an education equation, but not the earnings equation, and so
their impact on earnings is assumed to operate only through education
acquisition.) Table 4 summarizes some of the key papers in the field that identify
the causal impacts. Moreover, differences between the basic and causal returns are of
similar magnitudes for the studies considered in this table (they, of course, differ
across studies owing to different data, different countries, and so on). Hence, there is
robust cross-country evidence that the more educated get higher monetary rewards
in the labor market