BUS702 Economics for Managers: Models of Education Choice

The Human Capital and Signalling Models of Education Choice

In current, education models are becoming more popular in the area of economics. The human capital and signalling models are some major examples of these education models. These education models play a major role to improve the knowledge and skills of learners about the economics, labor markets, and social benefits. The Human capital model is one of the most important education models used in educational research as well as policymaking (Biddle, 2010). This model is also known as ‘HCT’ (Human capital theory). The HCT model plays a major role to evaluate the relationships among education, economic growth, and social interests. It is deeply linked with the capital theory. The HCT model states that, people spend too much money on their education and training. But, the money that they spend on education and training is not expenses for them. In other words, it can be said that, the money that is spent on education and training is not be measured as expenses.  These are investments instead of expenditures. The main reason behind it is that these expenditures will provide economic as well as social returns to people in future years (Arcidiacono, Bayer and Hizmo, 2010).  

On the other hand, according to the human capital model, education and job training will be able to enhance the productivity of business organizations. The increased productivity raises the GDP (Gross Domestic Production) of nations. A growth in the GDP leads to higher economic returns like higher wages to the individuals. So, by spending on education and training, people are benefiting themselves. The HCT model focuses only on quality of education for the growth of people (Gray, Hunter and Biddle, 2014). Along with this, as per the model, human capital is a combination of knowledge, skills, and life incidents of individuals. High spending on education and job training play a significant role to enhance the productions and GDPs of nations. The enhanced productions and GDP highly contribute in the social welfare. The human capital model depicts the value of education in the lives of people. According to this model, scholars pay for education only for the growth of their career. They get higher wages just because of the education, skills, and knowledge that they got during the educational process.

In addition to this, Signalling Model of education is quite different from the human capital model of education. Signalling model states that there are certain features that people have to capture signals in their higher education. These signals are helpful to evaluate and analyze available information in an effectual and an accurate manner. These signals highly contribute to do studies, complete tasks, and to work on group assignments in a more communal manner (Arteaga, 2016). Along with this, as per this model, these signals may explain numerous facts related to the higher education and economics that the human capital model cannot clarify. The model states that education is advantageous to students because of the signals that education sends to business organizations. Moreover, the model explains that, during the interviews, business organizations can only see the marks and grades that candidates gained in the educational processes. They cannot examine the IQ, conformity and work ethic of applicants in an accurate manner. In this situation, the Signalling model becomes helpful for employers to check the exact level of work ethic, IQ and conformity of candidates. It is because of with the help of this model, the employers conduct interviews only on signals and if they got right responses then they recruit a candidate (Hunter and Yap, 2014).

Along with this, both human capital model and signalling model of education are linked to one another. The main reason behind it is that, a candidate requires both high education and value education for the growth of his/her career. If a candidate only has higher education but does not have effective IQ, traditional values and work ethic; then he/she would not be a right person for the growth of the organization (Biddle, Howlett, Hunter and Paradies, 2013). Moreover, if an applicant only has high level of IQ, values, and ethics but does not have higher education; then he/she is also not the right person for which an organization is looking. In addition, according to these educational models, if a candidate does not complete a degree then it is a sign of weak work ethics. The weak work ethics send bad signals to business organizations about the candidate. Also, if a candidate has completed a high degree then it is a sign of strong work ethics. The strong work ethics send good signals to business organizations about the candidate. In this case, both educational models are interrelated. These both models equally contribute in the personal and career development of people. Higher education and work ethics play a major role in the growth of people (Bedard, 2001).

On the other hand, both human capital and signalling models of education are helpful to get employment in an effectual and a significant manner. It is because of these models play a significant role in the overall development of people. For case, human capital model develops educations qualities among students. In other words, it can be said that, with the help of human capital model, students obtain theoretical knowledge of subjects. Moreover, signalling model provides value education to learners. It can be believed that, with the help of this model, learners get the practical knowledge of subjects (Booth, Leigh and Varganova, 2012). Along with this, the below diagram is helpful to portray that how these models are useful to develop enhance the knowledge and skill of learners in an effectual manner.   

(Source: Liao, 2014)

On the premise of the above graph, it can be believed that, both models are equally important for the career growth of people. Along with this, these models encourage to students to get higher education to find suitable jobs for their continued existence in the world. High education is the prime objective of both of these educational models. This way, by considering both these models, students will show their interests in higher education only. The increased level of education will enhance the production, employment, GDP, and economic health of nation in an automatic manner.

In addition to this, both these models are useful for the business organizations. It is because of with the help of these models, employers become able to hire right candidates for the growth of businesses. The employers identify the actual education level as well as IQ level of candidates. These models play a major role to fulfill the requirements of both employers and employees in an efficient manner (Arcidiacono, Bayer and Hizmo, 2010). Moreover, these models work as remedies in order to remove the obstacles that business organizations mainly face in their recruitment processes. These both models of education improve the understandings of Indigenous in employment. The human capital and signalling model teach the students that how they may use their intellectual power to solve the problems that mainly occur in their day to day lives. Both these models contribute to improve the mental health of students. So, with the help of these models, students learn that book knowledge is not enough for the success. They should have practical knowledge along with book knowledge to get success in their lives (Liao, 2014). This way, it can be believed that, the human capital and signalling model of education enhance the both subjective and objective knowledge of people. These models enhance the understandings of Indigenous learners; so they can get proper jobs after completion of education.

References

Arcidiacono, P., Bayer, P. and Hizmo, A. (2010). Beyond Signaling and Human Capital: Education and the Revelation of Abilit. American Economic Journal: Applied Economics, 2(4), pp.76-104.

Arteaga, C. (2016). Signaling vs. Human Capital: Evidence from a reform in Colombia’s top University. Working paper, UCLA.

Bedard, K. (2001). Human capital versus signaling models: university access and high school dropouts. Journal of Political Economy, 109(4), pp.749-775.

Biddle, N. (2010). A human capital approach to the educational marginalisation of Indigenous Australians. (CAEPR WORKING PAPER No. 67). Centre for Aboriginal Economic Policy Research, Australian National University.

Biddle, N., Howlett, M., Hunter, B. and Paradies, Y. (2013). Labour market and other discrimination facing Indigenous Australians. Australian Journal of Labour Economics, 16(1), p.91.

Booth, A.L., Leigh, A. and Varganova, E. (2012). Does ethnic discrimination vary across minority groups? Evidence from a field experiment. Oxford Bulletin of Economics and Statistics, 74(4), pp.547-573.

Gray, M., Hunter, B. and Biddle, N. (2014). The economic and social benefits of increasing Indigenous employment. Centre for Aboriginal Economic Policy Research, Australian National University.

Hunter B. and Yap, M. (2014). Income, work and education: Insights for closing the gap in urban Australia. (CAEPR WORKING PAPER No. 92). Centre for Aboriginal Economic Policy Research, ANU College of Arts & Social Sciences.

Liao, Y. (2014). The Signaling Model: An Alternative Perspective on Education. Available At: https://www.qbreview.org/the-signaling-model-an-alternative-perspective-on-education/ [Accessed On: 2^nd June 2017]