Explain the criticisms advanced against human capital theory

1. The screening hypothesis
Education screens people from one level to the next. It separates individuals with
ability from those without ability. What makes people productive is their innate or in-
born abilities.
2. The labour market distortion
In real market situation there are certain skills which are very rare/scarce e.g. piloting;
these skills command a premium and people with such skills can dictate their salaries
to the employer. Jobs with very few people earn more not because of their level of
education but because of their skills.
3. Occupational future
The reason why some people earn higher than others is because of their occupational
differences and not the level of education as advanced by the theory. Some
occupations pay more than others. This leads to two types of jobs in the market:
a) Jobs with the future
b) Dead-end-jobs
Jobs with the future
They give room for future career growth and promotion. They have a well-
defined and clear promotional path. Educated people enter this kind of job which
has a well-defined scheme of service.
Dead-end-jobs
They do not allow for any training and there is no future career growth. They have
no clearly defined promotional skills and less educated people enter dead-end –
jobs. As a result the educated earn more not because of their level of education
but because of the type of jobs they get into.
4. The substitutability between jobs and occupations
There is inflexibility in changing occupations, what a trained person can do, untrained
person cannot do. This is a possible explanation why some people earn more than
others.
5. Education is also a consumption commodity
A consumption commodity is that which provides immediate satisfaction. Not all that
is spent in education is purely for investment purposes. Education therefore, can also
be described as a consumption commodity. In fact learners do not demand school just
because they intend to raise earnings in the future. Indeed in some cases education is
demanded for immediate enjoyment (consumption).
6. Credentials criticism
According to this criticism, education does not account for employees increased
productivity nor do their earnings reflect on increase in productivity. Rather education
provides credentials which employers use to hire labour. The criticism imply that
employers are in a kind of conspiracy with the educated to pay them higher not
because the educated have any special qualities but rather they intend to perpetuate
their domination of the labour union.
7. Industrial relations criticism
According to this criticism, individual earnings are greatly influenced by the pressure
trade unions exert on employers. Employers are therefore compelled to pay people
more not because of the amount of education they have acquired but because of trade
union’s pressure.
8. Conspicuous consumption of labour
Certain firms pay employees more not because they consider them more productive
than other forms of labour but rather because they intend to use their earnings to
market themselves. Higher earnings for employees generally give a different form of
reputation among consumers, a factor that may increase sales.
9. Earnings are not always a measure of marginal productivity
The theory assumes that earnings are an accurate representation of employers’
marginal productivity. This assumption is market-based since employers don’t have
the means of determining employees’ productivity before housing or employing
them. In spite of this however, educated labour is paid more than non-educated labour
from the onset. This suggests that employers do not attach their payment on marginal
productivity but rather on the education of the individual.
10. Educated unemployment problem
This is where the educated have no formal employment and therefore their
productivity level is zero.

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NatalieR answered the question on June 20, 2022 at 05:35