Learning, earning and the death of human capital.

Is there a clear predictive relationship between the amount of education ‘received’, as measured by qualifications achieved, and future earnings? The idea is strongly held by many policymakers and it plays a part in the public debate about investment in education and training. Claims are regularly made that achieving a particular qualification will boost an individual’s lifetime earnings by so many thousand pounds, or conversely, that lower educational achievement, for instance as a result of the Covid-19 pandemic, will automatically lead to millions of pounds in lost earnings.

The problem with such predictions is that:

  • they are misleading, unverifiable claims about future earnings based on extrapolating from current earnings premiums into a future economy and labour market;
  • they promote a simple mechanistic relationship between learning and earning which takes little account of economic and labour market changes.

These sorts of claims flow from orthodox human capital theory which assumes a strong connection between education and the labour market and a cause-and-effect relationship between qualification levels and future earnings or labour market advantages. This set of beliefs is critically examined in some detail in a new book ‘The Death of Human Capital?’ by Phillip Brown, Hugh Lauder and Sin Yi Cheung.

Human capital theory has been influential in shaping the way education is viewed and it is often the basis for justifying investment in education, promising a ‘win-win’ link between higher levels of education and the promise of well-paid jobs. But learning isn’t earning and more investment in education, while justifiable for many good reasons, does not guarantee higher earnings. Trying to estimate the economic returns of education is a complex business and depends on who is doing the learning and the context they will be seeking employment in.

At best, the evidence shows only that more education meant more income in the particular conditions of the ‘golden era’ before the 1973 recession, when income inequality was less wide than now, and when far fewer people received higher education. Since then, there have been fundamental changes in the relationship between education, employment and incomes. The highest earning ten percent have pocketed an increasing share of earnings, inqualities have widened and the global auction of for both high-skilled and low-skilled jobs has tended to depress everyone else’s relative incomes.

Faced with the evidence, human capital orthodoxy has adapted its claims to suggest that it is actually investment in specific skill sets, rather than education in general, which is most likely to increase earnings. But these ‘special case’ arguments based on allegedly scarce ‘high-productivity skills’ don’t really bear much scrutiny either. The Bank of England has concluded that the impact of qualifications on wage growth is in decline. There is also evidence that working class, black and women workers consistently get lower returns from qualifications and that the gaps are widening. The reality is that far from being a sure-fire fast-track to upward mobility, gaining qualifications provides no guarantees. Winners use their existing market power to their advantage making it very difficult for everyone else, however hard they try, and the authors conclude, slightly depressingly, that:

“educational achievement does not translate into equal labour market opportunities.”

Labour markets are not simply based on skills competition but also on cost competition and globally there has been little growth in good-quality jobs, the opposite in fact. And, so:

“The failed promise of orthodox human capital theory needs to be addressed if we want to improve the quality of life for all rather than the few in both developed and emerging nations.”

The book is not just a critique, the authors also propose an alternative approach which they frame as an other kind of human capital theory although it seems very different. This rejects accounts based on labour scarcity and the idea that we are all in a skills competition with education’s role to provide ‘bundles’ of valuable human capital which generates a flow of income throughout our lifetime, due to its relative scarcity.

The starting premise for this alternative approach is the reality of job scarcity and the inherent problems of creating enough good quality jobs that match the skills and capabilities of the workforce. The authors also examine the socioeconomic foundations of human capital theory and argue that human behaviour is not like other forms of capital and that we need a better understanding of what people want from work. Crucially, they highlight the systemic inequalities in the distribution of opportunities for people to develop their capabilities; inequalities which can’t simply be explained by investment by differences in investment. The authors argue that addressing this requires a transformation of the ‘structure of opportunities’.

It is true that technological change has destroyed more jobs than it has created. But in our crisis-ridden economies there is no shortage of work that needs to be done to support human survival, sustainable and just forms of human development. It’s just that those types of work happen to be undervalued in our current economies. This suggests we need an alternative economic policy based on developing human capacities to meet human needs sustainably and guaranteeing full employment and a living income for all. We don’t have to accept either labour scarcity or job scarcity as inexorable.

The authors argue that our social and economic relationships with each other and with work can’t easily be translated into capital. New patterns of employment will require new modes of earning and learning and we need to redefine and redistribute the benefits of economic activity, the ‘productive dividend’, more equally in order to enable human flourishing across society. We also need a wider understanding of educational purpose, productive contribution and the quality of life.

They conclude that we are in a race against time and that orthodox human capital theory is an impediment to the creation of a more inclusive and economically viable future. The new human capital proposed by the authors is far more than an adjustment of the current orthodoxy, it requires nothing less than:

“re-imagining education, work and the labour market for a different economic and social world.”

If we continue to make the case for investment in education on the basis that it generates higher future earnings, we narrow the scope of what education and training can aspire to for people and for society. I think that the new approach based on human capabilities, human needs and social justice can dispense entirely with the ‘capital’ metaphor, which I see as an unhelpful straitjacket. In the same way, I think the title of this useful book could dispense with its question mark.

The book’s contribution is only part of the story. A fuller account of how to deal with the social and economic crises we face would combine this analysis with the ‘build back better / build back fairer / build back greener’ agenda and look something like a global green new deal with economic and social justice at its core. In this spirit, this book could usefully be read alongside Ann Pettifor’s ‘The Case for the Green New Deal’ and Guy Standing’s ‘Basic Income’ or ‘Plunder of the Commons’.

‘The Death of Human Capital?’ is a convincing demolition job which should finally seal the fate of Human Capital orthodoxy, although dismantling deeply held belief systems can take time and some policymakers will no doubt remain attached to it for a while. And far from undermining the case for investing in education, discarding human capital theory creates new opportunities to make that case broader, richer and stronger.

See also:

Starting to rethink education (June 2020)

What is social capital? (July 2016)

Capital as metaphor (June 2016)

Do qualifications create wealth? (Jan 2015)

Exam success boosts the economy by £1.3Billion? (Dec 2014)

About Eddie Playfair

I am a Senior Policy Manager at the Association of Colleges (AoC) having previously been a college principal for 16 years and a teacher before that. I live in East London and I blog in a personal capacity about education and culture. I also tweet at @eddieplayfair
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1 Response to Learning, earning and the death of human capital.

  1. Pingback: Learning, earning and the death of human capital. | thelearningprofessor

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