Human capital or signalling, unpacking the graduate premium

Abstract

Purpose –The purpose of this paper is to revisit the debate on the contribution of higher education (HE) to the economy which has been dominated by human capital theory and signalling theory. Human capital theory contends that HE contributes by adding to the potential productivity of graduate employees. Signalling theory, asserts that HE contributes by enabling employers to differentiate potentially productive graduate employees. Design/methodology/approach – The paper uses recent advances in our understanding of the graduate employability to reassess the two theories. Most graduate job vacancies are open to graduates of any subject and the key to employment in such jobs appears to be the graduate propensity to learn in employment. Findings – HE both increases students’ propensity to learn in employment and signals to employers that graduates are people with a high propensity to learn in employment. Practical implications – The conclusion is that for the four key stakeholder groups, the economic value of a university education can best be explained with the concept of “graduate propensity to learn”. Social implications – Employers, government, existing students and potential students and universities benefit from the propensity to learn, which is the most important economic outcome of a university education. Originality/value – The paper resolves the choice between human capital and signalling theories as a false dichotomy as HE both develops students’ powers.