On the Returns to Higher Education
Higher Education Policy Institute
Canary Wharf 20.06.2012
Hugh Lauder - University of Bath
Sin Yi Cheung –Cardiff University
Phillip Brown –Cardiff University
SRHE Conference-7 December, 2011
Celtic Manor
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The Global Auction Thesis: The Knowledge
Economy Versus Knowledge Capitalism
Situating the Global Auction in National
Contexts.
The Problems with Human Capital Theory.
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Technological Evolution  Knowledge
Economy;
The Age of Human Capital - Education, Jobs
and Rewards;
Comparative Advantage:
◦ Developed Economies = Quality (Brain)
◦ Developing Economies = Price (Body)
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‘In the past, material forces were dominant in
national growth, prestige, and power; now
products of the mind take precedence. Nations
can transfer most of their material production
thousands of miles away, centring their attention
on research and development and product design
at home. The result is a new and productive
partnership between “head” nations, which
design products, and “body” nations, which
manufacture them’
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R.Rosecrance,
The Rise of the Virtual State, 1999.
High Skilled ‘Magnet’ Economy
• Higher Skills
• Raising Quality Standards
• Innovation and R&D
• Foreign Talent
Efficiency & Justice  ‘Learning = Earning’
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For many but not all graduates the Global
Auction is a Dutch Auction. There are four
elements to this:
The globalization of high skills.
The quality=cost revolution.
Digital Taylorism.
The War for Talent.
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Examine Views of Transnational Companies;
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Examine Views of Senior Policy-Makers,
including China & India.
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Seven Countries - Britain, China, Germany,
India, Singapore, South Korea, and the
United States;
Core Sectors – Automotive, Financial
Services and ITC/Telecoms;
Company Interviews:
125 company interviews = 105 outside of
UK;
Policy Interviews:
65 policy interviews = 43 outside UK.
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HE enrolments doubled within a decade from
33.4 to 62.9 million (1995-2005);
China overtaken US with over 20 million in HE
(2006). Now 27 million enrolled in HE;
Over 60 percent of engineering doctorates
were awarded to foreign students in both
American and Britain.
‘We have an “inside out”, not outside in model
which is very clever. It gives us more
flexibility over what to do where’
Senior Indian Manager, EU Electronics, Mumbai
‘What is really different here is research, we
generate ideas for the frontline to use…These
are the areas that we find that talent is
delivering to an even higher standard than
expected. We’re not doing those menial call
centre type jobs. It’s global work and that’s
where we think we’ve been able to add a lot
more value than what was initially expected
and that will continue.’
Senior Indian manager, US Bank, Mumbai
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Knowledge Work  Working Knowledge
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Simplify  Codify  Standardise 
Digitalise
‘Standardisation in terms of IT has become
huge…not only standards for a single customer but
across countries…technology is the ultimate
equaliser…it will drive globalisation, drive change…I
hope that people don’t get reduced to the state of
drones…but I think increasingly employment will
shrink.’
Chief Information Office, Financial Services.
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Developers (creators)
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Demonstrators (executioners)
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Drones (digital routine)
 Segmentation
of High Skilled
Labour;
 Performance Not Simply Skills;
‘It’s more important to get great talent,
since the differential value created by the
most talented knowledge workers is
enormous.’ McKinsey Consultants.
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The effects of the fundamental changes in the
creation of a global labour market on the national
demand for high skills will depend on each
economy’s industrial structure.
For example, Germany has a shortage of 8,000 Ph.D
graduates per annum.
For the USA and the UK the situation is radically
different.
In both countries there is a continued commitment to
the ideology of the knowledge economy and skill bias
theory–despite highly equivocal data trends.
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Most studies which seek to demonstrate the worth
of a graduate degree and that it is evidence of the
knowledge economy focus on the graduate
premium. But that is quite clearly misleading. The
premium varies between national economies
because of their structure (compare the UK and
Germany), while telling us very little about the work
many graduates do. Given these data it is most
likely that many will be ‘bumped down’.
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The previous point suggests that for some countries there are
not skill shortages but a deficiency of demand.
When we look at the demand for graduates in the UK we see
less evidence of a knowledge economy led by the private
sector:
In 1994 10.5% of graduates were in the private sector 22.8%
in the public sector. In 2008 The private sector percentage
had risen to 20% per cent and the public 37%. There has
clearly been an increase in the demand for highly educated
labour but the trends do not conform to the imaginary of the
knowledge economy.
See also the dispersion of earnings for educated labour as a
consequence of changes in the structure of labour markets.
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The talk of skill shortages is directly related to
human capital theory and its assumption that
employers will respond to more skilled graduates
by upgrading jobs because it will raise productivity.
It is a comfortable story to tell because it avoids
addressing the fundamental problems of demand
for skills posed by the global auction and
routinisation.
In some economies the tenets of human capital still
hold, in others it does not. Human Capital is not a
universal theory but time and context bound.
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Once we understand that human capital theory is
flawed: that we do not live in national labour
markets characterised by new equilibria driven by
the increased supply of educated and skilled
workers, then the policy settings need to change to
construct the demand for skilled workers.
It follows that some form of industrial policy is
necessary. Indeed it can be argued that the
countries with the smartest industrial policies will
be the most globally competitive.
Countries that are neo-liberal path dependent (the
UK and to a lesser extent the USA) face the
toughest challenges.
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We do not live in an knowledge economy but
rather within global knowledge capitalism.
Education and skills alone will not protect
individual workers or the competitiveness of
economies –watch Nokia and Finland!
The majority of graduates in many countries
will not earn the same income as their
parents nor will they have the same lifestyles.
Unless there is a fundamental change in
economic policy.