[Revised for Studies in Higher Education 30 June 2017, accepted for publication]

Limitations of human capital theory

Simon Marginson

UCL Institute of Education, University College London, UK; and Melbourne Centre for the
Study of Higher Education, University of Melbourne, Australia

Contact details

Simon Marginson (corresponding author)

UCL Institute of Education

University College London
20 Bedford Way
London WC1H 0AL
United Kingdom

Office phone: +44 (0) 207626341

Mobile: +44 (0) 7876323949
Email: [email protected]

Word count

Text and notes 7635 words, references 1751 words, title page and abstract 291 words.

Bio

Simon Marginson is Professor of International Higher Education at the UCL Institute of

Education, University College London, UK, and Director of the ESRC/HEFCE Centre for
Global Higher Education. He is Joint Editor-in-Chief of Higher Education.
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Limitations of human capital theory

Abstract

Human capital theory assumes that education determines the marginal productivity of
labour and this determines earnings. Since the 1960s it has dominated the economics,
and policy and public understanding, of relations between education and work. It has
become widely assumed that intellectual formation constitutes a mode of economic
capital, higher education is preparation for work, and primarily education (not social
background) determines graduate outcomes. However, human capital theory fails the
test of realism, due to weaknesses of method: use of a single theoretical lens and
closed system modelling, inappropriate application of mathematical tools, and
multivariate analysis of interdependent variables. Human capital theory imposes a
single linear pathway on the complex passage between heterogeneous education and
work. It cannot explain how education augments productivity, or why salaries have
become more unequal, or the role of status. These limitations are discussed with
reference to research on social stratification, work, earnings and education.

Keywords

human capital theory; educational policy; critical realism; philosophy of education;

sociology of education
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Limitations of human capital theory1

Human capital theory

Since its modern beginnings at the turn of the 1960s (Mincer 1958; Schultz 1959, 1960, 1961)
and fuller development by Gary Becker (1964), human capital theory has constituted a fecund
research programme in the economics of education, associated with many thousands of
empirical studies. In the foundational narrative of human capital theory, education drives the
marginal productivity of labour and marginal productivity drives earnings. Correspondingly,
the value of investment in education is defined by the lifetime earnings of educated labour.
Education, work, productivity and earnings are seen in linear continuum. When educated
students acquire the embodied productivity (the portable human capital) used by employers,
graduate earnings follow. In the pure and original form of the idea, higher education more or
less automatically triggers private enrichment, career success and national economic growth.
The claim about the contribution to economic growth made by aggregated investment in
education as human capital, first asserted baldly by E.F. Denison (1962) and developed with
more econometric sophistication in endogenous growth theory’s account of education and
knowledge in technologically-driven development (Romer 1990), is now a common policy
assumption (Psacharopoulos 1994; Keeley 2007). In some countries, data on private rates of
return to graduates are used to regulate the private/public split in education financing,
between fee payments and government subsidies (Chapman, Higgins and Stigltiz 2014),
though there is debate about the respective roles of public and private investment.
The dominance of human capital theory in the economics of education is matched by its
authority in the public and policy domains. Nevertheless, as discussed immediately below,
there is a gap between the world imagined in the theory and the real economic and social
world in which it is applied, and this gap may be growing. This article will argue that human
capital theory’s failure to meet the test of realism derives not from lack of sophistication—
since its foundation there have been various innovations designed to increase its empirical
purchase and utility—but from its meta-method. The limitations in meta-method, which are
discussed below, have led in turn to a flawed and narrow understanding of education/work—
and the first mover authority of human capital theory has stymied alternative conceptions.

The theory and its policy contexts

Founding modern human capital theory was the product of a particular historical moment that
favoured its genesis and spread. It evolved amid the building of mass higher education in the
United States (US) (Kerr 2001). The theory provided a rationale for the government-
sponsored expansion of higher education, while also promising to efficiently regulate the pace
and cost of expansion on the basis of the measured economic returns to graduates. The main
ideas were propagated internationally by the United Nations Educational, Social and Cultural
Organisation (UNESCO 1968) and later the Organisation for Economic Cooperation and
Development (OECD). They became general to economic policy at the same time as another
policy discourse, social rather than economic, that of equality of opportunity through
education. In the conjuncture, the two policy ideas were necessary to each other (Marginson
2016a). The policy goal of equality of opportunity promised to optimise the economics of
education by ensuring that all available productive talent would become educated. Human
capital theory provided an economic justification for investment in expanding educational
opportunity. In Capital in the twenty-first century (2014) Thomas Piketty shows that between
the 1950s and the 1970s conditions in the United States were unusually favourable for the
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reception of these ideas (Marginson 2016a, 3-4). The potential for upward social mobility via
higher education was high. Professional jobs were growing rapidly; income from inherited
capital was at historically low levels; and to an extent not seen before or since, income from
work was the main source of wealth (Piketty 2014, 241). Amid excess demand for educated
labour all graduates could obtain good jobs. This appeared to confirm human capital theory in
practice and also underpinned contemporary optimism about the potential of higher education
to create a fairer and more efficient society, in which educated merit and hard work would
determine success, rather than prior family position. Piketty notes that Becker’s (1964)
mathematization of human capital theory is permeated by the belief that all forms of capital
other than human capital (that is, financial, social and cultural capital) have lost their
determining importance (Piketty 2014, 385). The 1960s expansion of opportunity and social
mobility enabled human capital economists to imagine that the theory was not just necessary
in explaining the relationship between higher education and work, it was sufficient.
Half a century later the context is different from that in which Becker published Human
Capital. In the 55 countries in which the higher education system includes 50 per cent or more
of the youth cohort (Marginson 2016b), in variant and often fluctuating economies, not all
graduates enter professional jobs; while income inequality has dramatically increased in the
United States (Saez 2013; Piketty 2014, 265), inheritance is more potent (p. 393) and income
from capital now outweighs income from labour as a source of wealth (p. 402). The power of
family income, social and cultural capital in determining access to both elite higher education
and elite professional employment is attested repeatedly in research (e.g. Soares 2007; Rivera
2015; Social Mobility Commission 2016). American social mobility is at a lower ebb than in
the 1960s/1970s (Corak 2012; Stiglitz 2013). Regardless, human capital theory continues to
shape understandings of relations between higher education and work. One reason is that
although equality of opportunity has faltered in societies becoming more unequal, the idea of
merit as learned and portable ability retains legitimating power. The notion of human capital,
floating free of other forms of capital, implies that those with social advantages succeed not
because of their birth and connections, but because of their abilities and powers of application
(Hennessy 2014). In a ‘hypermeritocratic’ parody of the original human capital idea (Piketty
2014, 264-265), the exceptional salaries of American super-managers are legitimated by their
prior selection into leading universities (Rivera 2015) and within performance pay regimes by
alleged super-productivity in the workplace (Hanley 2011). In this curious backhand way, the
core propositions at the heart of human capital theory have ‘meritified’ self-reproducing
privilege, though the normative commitment of economists is often to equality of opportunity.
Many human capital economists have grappled with these problems. Since 1960s the
human capital research programme (Blaug, 1976) has taken on greater complexity and the
foundational narrative has been considerably supplemented. Becker’s later work (e.g. Becker
and Murphy 2003) seeks to account for the influence of the social setting on behaviours and
choices, in the process extending his 1964 conception of productivity-generating skills and
knowledge beyond the education system. Other scholars draw attention to the influence of
non-educational factors in earnings. For example, Gerhard Glomm and B. Ravikumar (1992)
combine choice-based investment in human capital with the capacity of parents to pass on
endowments to their children, which they define as another component of human capital. This
provides one possible reconciliation of human capital theory with unequal economic and
social outcomes, suggesting that education may generate absolute economic gains through
productivity advance while leaving relative benefits unchanged. Liam Delaney, Colm Harmon
and Cathy Redmond (2011) investigate parental education as causal in relation to graduate
earnings expectations. Jack Britton, Lorraine Dearden, Neil Shephard and Anna Vignoles
(2016) study UK graduates with ten years in the labour market, investigating the effects of
variations in socioeconomic background, gender, institution attended and field of study. They
 5

note high dispersion in graduate outcomes (pp. 53-54), and find that ‘graduates’ family
background – specifically whether they come from a lower or higher income household –
continues to influence graduate’s earnings long after graduation’ (p. 55). Graduates from
higher income households earn at least 10 per cent more at the median than graduates from
low income households after factoring out other student characteristics, institution attended
and field of study (p. 55). High income origins protect graduates against low earnings and
increase their prospects of very high earnings (p. 56). In considering why these data modify
expectations created by human capital theory, the authors suggest ‘students from wealthier
families … might have access to financial, social and cultural capital’; though they also pose a
possible alternative, that students from wealthier families may have greater ability (p. 56).
A feature of human capital economics is that despite the complexities and qualifications
introduced by theorists, and notwithstanding marked changes and variations in real-world
contexts, the core 1960s propositions of the theory remain intact, at least as a partial truth.
Crucially, they still function as a form of default explanation. The other factors, which are
often seen by economists as social rather than economic, seem to be pasted on; framed as
potential modifiers rather than the basis of an alternative explanation of higher education,
work, incomes, income distribution and social outcomes. The human capital economist asks
‘why doesn’t human capital theory work as it should, and what are the additional elements
and modifications needed to make it work as it should?’ rather than ‘what is a new and better
explanation of the relationship between education and work?’ Moreover, the economists’
qualifications often drop away when human capital calculations are used instrumentally in
policy; and the complexification of the theory scarcely impacts the larger public discussion
about education and work, in which it is the original and default explanation—rather than the
qualifications, complexities and contextual issues—that continues to have shaping effects.
This is because human capital theory has become influential in policy and public thinking
not simply as an applied research programme and a set of econometric techniques deployed
one way or another, but in the form of a widely-understood metaphor for relations between
work and education, that is grounded in the foundational narrative of a linear continuum
between education, work, productivity and earnings. It could be argued that this metaphor has
become so widespread as to comprise part of the modern ‘social imaginary’ (Taylor 2007).
The popularisation of human-capital-as-metaphor helps explain the ‘pervasive belief in the
power of degrees to both allocate individuals in the labour market and to serve as job
requirements throughout the occupational structure’ (Baker 2011, 62). That intellectual
formation constitutes a mode of economic capital (Hodgson 2014); that in the first instance
higher education can be primarily understood as preparation for work and career; and that
education itself, not family income or cultural attributes or social networks, is the starting
point for an explanation of career outcomes and earnings: all these notions have (arguably,
unduly) elevated education as a social and economic arbiter. For example, in the United
Kingdom and Australia, higher education institutions (HEIs) and their disciplines are held to
account by government and public on the basis of graduate earnings and/or employment rates
in the early years of work, regardless of other elements that affect employment and earnings.
Correspondingly, the idea of education as self-investment in one’s own capital positions
graduates (or their portable human capital) as responsible for individual success/failure and
weakens the obligation of government to steer a more equal income distribution.
By no means all economists would endorse those conclusions. Few would agree with the
simplified version of the relations between higher education and work current in much policy
rhetoric and public debate. Most professors of economics would firmly reject notions that the
value of education can be reduced to its measured effects in earnings or jobs. However, such
positions are consistent with the intellectual strategy of human capital theory, which is to
protect the original ideas by rendering them more complex and nuanced rather than call them
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into question. The founding paradigm has not been declared obsolete—and like most social
scientists, human capital economists are not known for talking down their core idea. In this
manner, human capital theory (buttressed by human-capital-as-metaphor) tends to block from
view alternative ideas, theories and measures about relations between education and work.

Critiques of human capital theory

Since its inception human capital theory has been subject to repeated and often devastating
critiques. Few scholars from outside mainstream economics with a close research knowledge
of education have endorsed human capital theory. Many scholars in the political economy of
education and labour have challenged the core narrative, from Samuel Bowles and Herbert
Gintis (1976) to Joel Spring (2015). On the economics/sociology border, screening theory
sees higher education not as a site of self-investment in cognitive formation that delivers
economic returns, but a system for signalling a competitive position that delivers economic
returns—an alternative narrative to human capital theory using much the same evidence (e.g.
the early study by Berg 1971). Sociologists including Martin Trow (1973), Randall Collins
(1979), Ulrich Teichler (2009) and David Baker (2011) provide very different accounts of
work and education. In his work on social reproduction in education Pierre Bourdieu (1984,
1988) highlights positional competition and status, which human capital theory cannot
encompass, and introduces family cultural capital and social capital networks as central to the
explanation, rather than dispensable add-ons. The OECD (2014a) treats social background
effects on vocational outcomes, and human capital effects, as intermeshed, without giving
priority to one over the other. A large literature explains socially differentiated educational
outcomes more as a function of prior inequalities and institutional stratification in education,
than individual choices about self-investment in education, pointing to ways in which social
inequalities affect aspirations (e.g. Hoxby and Avery 2013) and are reproductive (Boliver
2011, 2013). In The Global Auction (2012) Philip Brown, Hugh Lauder and David Ashton
describe declining private returns and dispersion of graduate outcomes amid unequal and
exploitative societies, again a different world to that suggested by human capital theory.
However, most critical scholars are at cross-purposes with those they criticise. After all,
any theory can be criticised from the standpoint of a different theory; and any discipline can
be interrogated from the perspective of another in several ways. But sociological critiques
have limited potential to persuade economists or change the minds of economic policy makers
for whom economics is the master social science. Rather than posing an alternate theory or
discipline as the basis of critique it is more fruitful to go the roots of human capital theory—to
interrogate the default narrative in relation to its own purpose, which is to provide a universal
explanation of relations between education and work. In this article the basis of critique is
historicisation, which tests a theory against the empirical terrain it purports to explain. The
emergent weakness of human capital theory is lack of realism. Milton Friedman (1953)
argued that economic theory does not need to be realistic to make viable predictions and
secure normative effects. Yet for many economists, and more policy makers, a key idea that
lacks realism does have a problem. Lack of realism undermines the scope of government to
understand and to act.
The present article argues that human capital theory lacks realism in at least four areas.
First, human capital theory uses a closed analytical system and independent variables but
neither external effects nor co-dependence can be eliminated from the problems it addresses.
Second, a linear theory is applied to material that is non-homogeneous in space and time.
Third, human capital theory unifies two heterogeneous domains, education and work, as if
they are a single domain. Fourth, it eliminates other possible explanations of education/work
relations, of which there are many. It is further argued that these weaknesses at the base of
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human capital theory, derive from the underlying meta-method of its social science (Dow
1990), which blocks the possibility of realistic explanations. The problems of meta-method,
not unique to human capital theory, are: (1) the theory’s claim to a universal theorisation
based on a single lens, and its closed system modelling of social relations; and (2) the mis-
application of mathematical tools, and in particular, the use of multivariate analysis of social
relations in contexts in which the variables are irretrievably interdependent. The article begins
with discussion of these problems of meta-method and then moves to the four points above.
The discussion of meta-method draws on critical realism (e.g. Bhaskar 2008, Sayer 2000)
and heterodox economics, realist and historicised bodies of thought that work across multiple
disciplines and theorisations and use multiple methods. The limitations in human capital
theory’s understanding of relations between education and work are discussed with reference
to selected research on social stratification, work, earnings and higher education.

Problems of meta-method

Universal lens and closed system

Human capital theory operates as a single and universal lens. The use of the single exclusive
lens rests on the dualistic proposition that there is only one possible truth about social
phenomena, and that particular truth has absolute authority (Dow 1990, 2012). In this kind of
social science, the researcher applies a fixed theoretical framework and linked methodology to
a succession of empirical observations in different sites. The theory is seen as universally
applicable to all sites. Obversely, the only phenomena that can be recognised in observation
are those nominated in the template of the theory. It is as if one objective of each act of
research is to affirm the theoretical components by identifying and codifying them. The
weight of successive papers seems to ‘prove’ the master theory but it is a test that tends to
guarantee its own result. The possibility that the master theory is more applicable to some
social sites than others is not considered. However, the succession of similar narratives has
diminishing returns, in that they are increasingly less likely to create new knowledge.
Two lacunae follow from the use of a single exclusive lens. First, as suggested,
observation is stymied in sites where the single lens does not readily apply to the material.
Second, other possible explanations, arising from the use of the many other lenses, are
obscured. Researchers using a single lens might acknowledge limitations of their study but
rarely question the capacity of the master theory to address any possible problem.
For universal explanations to work they need closed systems with limiting premises.
However, critical realism argues that social structures are always partly open, to other
structures and agents, and historical contingency (Sayer 2000). While a temporary partial
closure is necessary in any research and analysis, the problem arises when analytical closure
is placed beyond interrogation and has the force of a fixed and permanent law, as with human
capital theory. This creates conditions for fallacies. Tony Lawson critiques neoclassical
economics on the grounds that it imagines the economy as a closed system operating by
deductive logic. ‘Deductivism’ is ‘the thesis that closed systems are essential to social
scientific explanation (whether the event regularities, correlations, uniformities, laws, etc., are
either a prior constructions or a posterior observations)’ (Lawson 2012, 3-4).

By deductivism I mean a type of explanation in which regularities of the form

‘whenever event x than event y (or stochastic near equivalents) are a necessary
condition. Such regularities are held to persist, and are often treated, in effect, as
laws, allowing the deductive generation of consequences, or predictions, when
accompanied with the specification of initial conditions. Systems in which such
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regularities occur are said to be closed … If mathematical methods of the sort

economists mostly fall back on are to be employed, closures are required (or
presupposed). (Lawson 2003, 5, emphasis in original).

If mathematical sets in economics are universally relevant, strict ‘event regularities’ must
be ubiquitous in the real world. However, when deductivism is used in real life contexts,
‘social event regularities of the requisite kind are hard to come by’ (Lawson 2003, 13). The
alternative is to imagine the economy/education as a partly open system without strict ‘event
regularities’, to acknowledge the partial character of the truth about that system obtained
through any one lens, and to open up ‘the possibility of a range of approaches’ (Dow 2012,
82). Theories ‘can vary according to changed times and circumstances’ (Carabelli and Cedrini
2014, 44). This is also true of the policy applications of theory. Hence, human capital theory
is closer to realism under full employment than high unemployment, and more explanatory of
investment in financial management education than investment in a music or drama
programme with negative rates of return. If no single discipline, theory or methodology has
universal reach, by the same token no one explanation excludes, cancels out or invalidates all
other explanations. This means that in each research site and problem it is necessary to
identify the appropriate theoretical lens, or combine and match the appropriate lenses.

Problems of multivariate modelling

The high standing of mathematical modelling in much of social science reflects a society-
wide belief that mathematics is fundamental to science; a conviction (or ideology) that derives
not just from the elegant simplification permitted by mathematics, but also from the success
of mathematical precision in many domains (Lawson 2012, 16). However, the subject matter
of the ‘social disciplines’ is often inappropriate for mathematical treatment (Carabelli and
Cedrini 2014, 31), especially when complex, holistic, synthetic accounts are required. ‘The
fundamental problem of modern economics is that methods are repeatedly applied in
conditions for which they are not appropriate’ (Lawson 2012, 1)— mathematical methods are
often applied to phenomena they cannot adequately comprehend and problems they are not
competent to solve. Mathematical methods have potential in research on education and work,
as auxiliary tools in studying relations and comparisons. They can be used to map proportions
and changes in bounded sub-systems. But in themselves these methods do not explain, they
illustrate. Sayer (2000, 22) states: ‘Statistical explanations are not explanations in terms of
mechanisms at all, merely quantitative descriptions of formal (not substantial) associations’.
One heterodox line of thought in economics rejects the main path taken by methods of
mathematisation and statistical modelling in human capital theory and parallel domains,
particularly multi-variate analyses that impose arbitrary definitions on indeterminate social
variables in complex sites in which many variables are at play. Multivariate statistical
analyses use probabilistic methods to distinguish nominal degrees of causality for each one of
a set of variables. However, Alfred Marshall argued that when the subject-matter becomes
more complex, rather than devising ways of reducing that complexity, the economist should
diminish the use of abstract reasoning and mathematics (Marshall 1898, 39). Marshall argued
that the problem with much of the use of mathematics in economics is that the econometrician
‘takes no technical responsibility for the material, and is often unaware how inadequate the
material is to bear the strains of his [sic] powerful machinery’ (Marshall 1920/1961, 781).
Similarly, John Maynard Keynes noted that mathematical reasoning was formally rigorous yet
hostage to the quality of the initial assumptions (Keynes 1936/1973, 297–298).
In reflecting on the limits of statistical inference, Keynes noted that statistical analysis
depends on the universal validity of assumptions, and is valid only when the variables used
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are wholly independent of each other (Keynes 1921/1973, 276–277; Carabelli and Cedrini
2014, 28-29; Lawson 2012, 1-2)—a test many multivariate analyses fail to meet. As Keynes
remarked, ‘we are faced at every turn with the problem of organic unity, of discreteness, of
discontinuity—the whole is not equal to the sum of the parts, comparison of quantity fails us,
small changes produce large effects, the assumptions of a uniform and homogeneous
continuum are not satisfied’ (Keynes 1933/1972, 262; Carabelli and Cedrini 2014, 36-37).

The ‘atomic hypothesis’, which justifies inductive reasoning and mathematical

calculus, cannot be applied to organic complex systems … Keynes is critical of
the attempt to blindly apply mathematics and statistics, with their assumptions of
homogeneity, atomism and independence, to an economic material that is
essentially vague and indeterminate, not homogeneous, not divisible in
homogeneous independent parts, not finite, and is characterised by organic
interdependence (Carabelli and Cedrini 2014, 29-30).

In the same vein, Pierre Bourdieu and Jean-Claude Passeron remark on the
interdependent and organic character of the factors affecting social inequality:

It is the system of factors, acting as a system, which exerts the indivisible action
of a structural causality on behaviour and attitudes … so that it would be absurd
to try to isolate the influence of any one factor, or, a fortiori, to credit it with a
uniform, univocal influence at the different moments of the process or in the
different structures of factors (Bourdieu and Passeron 1990/1977, 87).

A multi-variate analysis of relations between higher education and work would require
that all relevant variables are independent of each other, each separately interacts with the
other variables, and all interactions are governed by a common law. Such conditions hold
only in closed systems governed by a single universal logic. They do not apply in the real
world of education and work, where many variables under consideration are impossible to
conclusively separate from each other, for example family income, cultural capital, ‘ability’.
Worse, in many (if not most) human capital studies, the statistical correlation or coincidence
between two variables is held to constitute not a suggestive association between them, but a
demonstration (or a strong suggestion) that they are causally related. It is remarkable how
often statistically-based research papers about higher education and earnings conclude with a
statement equating correlation with causality, with weak or no qualification, and with little
regard for the limits imposed by the contextual conditions in which the data were generated.
By no means all multi-variate analyses are careless of these difficulties. Multicollinearity
and endogeneity have generated a large literature. However, efforts to compensate for their
problems from within the method cannot be conclusive; and if the limitations of the research
are fully acknowledged its precision and its generic claims are fundamentally undermined.
This suggests that the solution often lies in stepping outside the multivariate framework.

Problems of human capital theory

These problems are now considered specifically in relation to human capital theory.

Bounded statistical analysis and organic realities

The OECD sees human capital theory as necessary but not sufficient, noting that ‘a host of
education-related and context-related factors’ other than learning itself ‘affect the returns to
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education’ (OECD 2014a, 151). Richard Arum and Josipa Roksa are more sceptical, arguing
that ‘colleges have little control over wage outcomes’ (Arum and Roksa 2014, 125). As noted,
there is a long literature on factors that affect earnings, additional to higher education per se.
Graduate earnings vary by the differential status and resources of HEIs (’college quality’ in
the US literature); family income (Wolniak et al. 2008, 131); family life not mediated by
education (Triventi 2013, 45) including support for child development such as whether
children are read to at a young age (Corak 2012, 6); measured ‘ability’; type of secondary
school; and social and family networks at entry to higher education, entry to work and later
careers (Bingley, Corak and Westergard-Nielsen 2011; Hallsten 2014, 20; Arum and Roksa
2014, 14; Borgen 2015.). Earnings are affected by varying customs and hierarchies in
professions and workplaces; by the wage determination system and the industrial balance of
power (Piketty 2014, 305); and the configurations and fluctuations of economies. Given these
factors—which are all constantly changing—it is delusional to seek to measure or compare
the quantity, quality or productivity of education programmes, institutions or systems, on the
basis of the private rates of return to, or the rate of employment of, those graduates.
Statistical methods design to eliminate the effects of factors other than higher education
flounder given the number of variables, their interdependency, and the impossibility of
isolating each causal factor from all the others. This in turn leads to problems of selection
effects. The economist struggles to find causality in the face of multicollinearity problems but
the comparisons are contaminated by hidden factors. It must be said the problem of selection
effects is a non problem grounded in the assumption that elements are atomistically separable.
Nevertheless, in research premised on the assumption of atomism the problem must be solved.
Attempts to account for selection effects generate diverse results. Reviewing research on
graduate earnings in China, Hongbin Li and colleagues note that while some researchers
identify returns to college selectivity after selection effects are accounted for, others find these
returns disappear. Much of the variation in findings is due to arbitrary assumptions about
selection effects, not variations in the real world (Li, Meng, Shi and Wu 2012, 78-79).

Non-homogenous and non-linear material

Human capital theory also fails to deal effectively with real world sites in which patterns are
non-linear and non-homogeneous. Nicolai Borgen remarks in relation to studies of graduate
outcomes that while averages create order from diversity, they do so ‘by masking important
heterogeneity across the wage distribution’ (Borgen 2015, 43). He also identifies non-linear
economic returns associated with higher education. Family background effects seem greatest
at top end of the wage distribution. ‘The returns to college quality are five times larger at the
90th quantile compared to the 10th quantile’ (p. 42). Gregory Wolniak and colleagues find
that after graduation, education is associated with a growing impact on earnings, in non-linear
fashion (Wolniak et al. 2008, 131). Paul Bingley, Miles Corak and Niels Westergård-Nielsen
researched the ‘intergenerational transmission of employers’ between fathers and sons. In
both Canada and Denmark, 30-40 per cent of young adults at some time work for a firm that
has employed their fathers. In both countries, the transmission of employers was positively
associated with paternal earnings, ‘rising distinctly and sharply at the very top of the father’s
earnings distribution’ (Bingley et al. 2011, 3, 7 and 12.). Again at the top end on incomes,
Iftikhar Hussain and colleagues find the apparent income effects of selective institutions
inflate, and returns associated with degrees are increasing (Hussain, McNally and Telhaj
2009, 12). Thomas Lemieux (2006) finds that in the US, over thirty years, ‘within-group
inequality grew substantially among college- educated workers, but changed little for most
other groups’ (p. 195). ‘The median, the tenth and the ninetieth percentiles are remarkably
stable for up to 12 years of education’. However, ‘above 12 years of education… the return to
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education at the ninetieth percentile increases much more than the return to education at the
tenth percentile, leading to a large increase in the 90-10 gap’ (p. 196). Lemieux concludes that
‘changes in wage inequality are increasingly concentrated in the very top end of the wage
distribution…’ [and] ‘postsecondary education plays a crucial role in explaining this
phenomenon’ (p. 199). The empirical data are consistent with Bingley et al. (2011) and
Borgen (2015), but Lemieux’s interpretation is questionable. Is the concentration at the top
end of incomes an effect of higher education, as Lemieux suggests, or due to something else?
These empirical patterns are consistent with Piketty (2014) and Emmanuel Saez (2013)
on income inequality in the US. In 2012 the top 1 per cent of income recipients received 22.5
per cent of all income, second highest level since 1928 (Saez 2013, 7-9). Non-linear returns at
the top end of the income distribution cannot be explained by human capital theory without
introducing factors from outside the theory, eroding it claim as a universal lens. For if returns
to labour are simply driven by the chain of human capital and marginal productivity, then
income inequality must also derive from unequal skills and productivity. Piketty comments
wryly that while ‘US educational institutions… surely need to be improved and made more
accessible’, they ‘probably do not deserve such extravagant blame’ (Piketty 2014, 330):

This very sharp discontinuity at the top income levels is a problem for the theory
of marginal productivity: when we look at the changes in the skill levels of
different groups in the income distribution, it is hard to see any discontinuity
between ‘the 9 percent’ and ‘the 1 percent’, regardless of what criteria we use:
years of education, selectivity of educational institution, or professional
experience (Piketty 2014, 314).

The reality, however, is that higher education is largely decoupled from the surge in top
incomes (Piketty 2014, 315 and 330). The recent broad consensus among scholars studying
work-based incomes in the US is that the blow-out in managerial salaries is more a price
effect than an education effect (e.g. Autor, Katz and Kearney 2008, 317-318; Mouw and
Kallenberg 2010; Hanley 2011; Bentele 2013; OECD 2014b), one grounded in tax cuts for
high income earners and work-related practices such as salary deregulation, de-unionisation
and performance-pay. Human capital theory cannot explain sharp variations in graduate
incomes over time, nor differences in patterns of income distribution, and top-end earnings, in
countries with similar higher education. ‘A major problem’ facing ‘marginal productivity
theory’ is that ‘the explosion of very high salaries occurred in some developed countries but
not others. This suggests that institutional differences between countries rather than general
and a priori universal causes such as technological change played a central role’ (Piketty
2014, 315, also 304, 308, 321). Nevertheless, the non-linear earnings pattern is suggestive,
implying that higher education affects American occupational outcomes less among high-
income earners than among middle level earners. While this again undermines the universal
claim of human capital theory it suggests a fruitful opening for further research.

Heterogeneity of higher education and work

The human capital equations unify higher education and work at the cost of suppressing much
that is distinctive about each. Arguably, work and higher education are different kinds of
social site, each with its distinctive history, requirements, daily practices, subject-positions,
rhythms and drivers. This does not mean work and higher education are unconnected.
Graduation is associated with higher employability and earnings (OECD 2014a, 102-170),
whether due to superior attributes of graduates or their positioning in the labour markets.
Some higher education is in continuum with work (e.g. selective programmes that train
 12

professionals such as doctors), and many higher education programmes have occupational
contents. Students and graduates, HEIs, professions and employers often make strenuous
efforts to connect education and work. However, the linear transition imagined in the human
capital narrative does not describe higher education/work relations. The transition is often
fraught. The education/work alignment is partial and unclear. Relations between the two
domains are multiple, context-bound, fragmented, uneven and must be continually worked on.
For many graduates job allocation lacks precision, especially in US higher education with
a high proportion of generic degrees (Roksa 2005, 225). Josipa Roksa and Tania Level state:

Many educational credentials have no obvious matches in the labour market.

This includes the majority of high school graduates in general and academic
tracks and a large portion of college graduates majoring in liberal arts and
sciences. Consequently, finding a job in one’s field of study is not only an
individual dilemma, it is a process that reflects the relationship (or lack thereof)
between the educational system and the labour market (Roksa and Levey 2010,
391).

Barbara Schneider and David Stevenson (1999, 79-85) find that only 44 per cent of
students had ‘aligned’ educational ambitions, meaning they planned to complete the amount
of education required by their intended occupations (Arum and Roksa 2011, 34). Many
students keep their vocational options open. Often they enrol for more reasons than vocational
planning, studying subjects they are good at, or they enjoy, while hoping the future will work
out. Though this strategy embodies uncertainty, because all graduates have a positional
advantage in the labour market vis a vis non graduates such confidence is not wholly
misplaced. John Robst (2007, 398) notes ‘the eventual match between degree field and
occupation is uncertain when selecting a major’. He finds that 55 per cent of respondents
report a close relation between their work and field of study, 25 per cent state they are
‘somewhat related’, and 20 per cent that they are not related (p. 402), though Robst has
difficulty defining the work-relatedness of general degrees.
Even among specifically trained graduates, many enter occupations that are outside their
fields of training, often not always with income penalties (Melguizo and Wolniak 2012, 383;
Robst 2007, 403-404; van der Werfhorst 2002, 301). This lack of fit between formal training
and work reflects the messy way that labour markets operate. Many professional jobs are
generic. They can be filled by graduates from any field, and level of education, and possibly
institution attended, are more significant than field of study. Many graduates take jobs that
provide the best pay and career prospects at the time of selection. At this career point some
will depart from their qualifications and a proportion never return. Some specialised positions
are filled by persons trained in specialist fields other than that of the position. For their part,
employers select the ‘best’ person from the available pool. Specific training and qualifications
is only two of the factors in play. Studies of graduate selection indicate that the attributes of
potential employees that influence selection also include institution attended, extra-curricular
activities as students, subjective perceptions of ‘fit’ between graduate and workplace, and
personal ties (e.g. Bingley et al. 2011; Rivera 2015; Tholen et al. 2013; Borgen 2015).
There is more vocational specificity in education and predictable pathways to work in
countries such as Germany than in the US. In Germany this is achieved not by market
coordination in education and work as Becker imagined, but by ‘tight linkages between
occupational groups, education and training practices, and certification boards’. German
practice appears to conform ‘nicely to human capital models’ but ‘these completely fail to
capture the importance of the elaborate institutional framework that enables the German
certification regime to operate as they predict’ (Hansen 2011, 32). Nor does human capital
 13

theory explain how education enhances productivity (p. 43) which remains a black box. One
constraint is its methodological individualism (Lukes 1973). It is impossible to accurately
attribute enhanced value to individuals working in a combined workplace, as are most
employees (Piketty 2014, 330-331).

Other explanations of education and work

Human capital theory understands only some students/graduates, those who consider the
lifetime earnings attached to different choices and weigh them against the costs of study.
Many students/graduate fail at being a choice-making self-investing homo economicus. Jens
Thomsen and colleagues report that at enrolment some students ignore forgone earnings
during study (Thomsen et al. 2013, 471). Others know graduate earnings only in their chosen
occupation, not related fields (Robst 2007, 399). Borgen (2015, 34) states that many students
do not ‘self-select into colleges based on expected gain’. Students have many interests in
addition to credentials, future earnings and careers, including network building (Armstrong
and Hamilton 2013); the accumulation of knowledge, generic skills and cultural capital;
intellectual formation as an end in itself; cultural activities; and social or political activism.
They mix their goals, practices and modes of reflexivity. However, if one other effect is
admitted then human capital theory can no longer function as a closed system.
Because it is a closed system human capital theory has never adequately addressed its
cousin, screening theory. There is evidence for the presence of the signalling function (just as
there is evidence some students estimate lifetime earnings in different jobs), though screening
no more constitutes a universal explanation than does human capital theory. For example,
Arum and Roksa (2014, 80-81) note that business graduates have strong early wage returns,
despite relatively low measured cognitive formation in that field. ‘Some majors serve as better
signals of employability than others, regardless of whether those degrees are underpinned by
actual field-specific knowledge and skills’. OECD data on earnings suggest that in some
countries the returns to qualifications exceed the returns to measured skills, in other countries
the ratio is reversed (OECD 2014a, 109). Both human capital and signalling effects are at play
(and without excluding other effects). Yet often social scientists feel obliged to choose
between them (e.g. Wolniak at al. 2008, 124-125; Hu and Vargas 2015, 3; Bake, 2011, 8).
Human capital theory also fails to encompass occupational and social status in education
and work, which is not fully captured by the earnings function. Arum and Roksa (2014, 57)
emphasise: ‘Rewards to occupations are related not just to income but also to occupational
status and prestige. In social settings, individuals are typically asked about what they do, not
how much money they earn’. Many studies identify status goals and effects, and variations in
the respective roles of earnings and status outcomes, by gender, by field of study and ‘college
quality’, between countries and over time (e.g. Arum and Roksa 2014, 80-81; Triventi 2013,
55-57; Zhao 2012; Thomsen et al. 2013, 471; Hu and Vargas 2015; Hennessy 2014, 47).
Investigating outcomes for 13-year out graduates, Roksa finds that for those with generic
degrees working in the public and non-profit sectors, a managerial role is often more
attractive than higher earnings. ‘Graduates of female-dominated fields are disproportionately
employed in public and non-profit organizations which offer lower monetary rewards but
facilitate access to professional and managerial positions’ (Roksa 2005, 207). The passage of
time affects income and status in contrasting ways in different fields of study. ‘Occupationally
specific degrees are beneficial at the point of entry into the labour market but have the lowest
growth in occupational status over time’ (Roksa and Levey 2010, 389), though they do better
in earnings (p. 399). Separately associated with both level of education and political standing,
status opens the way to jobs and income. Moris Triventi (2013) in four European countries,
and Hu and Vargas (2015) in China, find that ‘college quality’ is associated with higher
 14

occupational status. Hu and Vargas (2015) note that status is a signal of prestige to employers
and correlates with the likelihood of assuming a managerial position (p. 19).

Conclusions

Human capital theory presents its core propositions about education, learning, productivity
and earnings as a necessary and sufficient truth about higher education and work, albeit (in
some studies and to varying degree) joining these core propositions at the periphery to caveats
and moderating factors. The theory’s claim about its universal application, in conjunction
with the intellectual and policy dominance it has long exercised, has disrupted the possibility
of a social science of education and work at a higher level of real world complexity.
Higher education and work are different and separated social sites though there are
important overlaps in practice. This is not a relationship of identity, regularity or a linear
continuum. Nor is it a dialectic, in which two contrasting parts form a unified system with a
shared logic. Education and work are heterogeneous in relation to each other. Their relations
are never wholly resolved or resolvable in practice; and if a final resolution is attempted in
theory then something can be lost from view (for example, the generic or liberal component
of intellectual formation in higher education, which has no specific vocational aspect, slips
from empirical sight, or appears negative). Relations between higher education and work are
also context bound. They vary by country, field of study, type of institution, financing of
education, occupation, industry, employment site and over time. For example, both David
Goodman (2014) and Wei Zhao (2012) note that status drivers are especially important in
China, arguably playing a larger role in comparison with income drivers than in the US. The
task of a realist study of education/work is to combine sensitivity to context with an account
of larger patterns, including aspects of social relations not directly observable (Sayer 2000).
These patterns are both internal and external. Like all semi-bounded systems, the dyad of
higher education and work is connected to other systems or ‘fields’ (Bourdieu 1993; Fligstein
and McAdam 2015), including income determination and wealth creation, labour markets,
state and politics, taxation, public spending and programmes, global flows.
Given that education/work relations entail complex and multiple phenomena—and no
theorisation can contain all phenomena, while retaining a bounded coherence—it is axiomatic
that more than one description of education/work relations can provide useful insights. Gerber
and Cheung (2008, 301) canvass four possible reasons for the higher earnings of graduates of
elite institutions: elite HEIs impart more valuable human capital, elite graduates signal their
status to employers, students in elite HEIs garner more valuable social capital, graduates from
elite HEIs have enjoyed advantages such as family affluence or ability that generate more
favourable outcomes. However, in this paper they do not consider the possibility that all four
factors are in play, with the mix varying over time and between countries and between fields
of study. In orthodox sociology, as in orthodox economics, theoretical multiplicity is mostly a
bridge too far. The drive for universal explanation, that elusive talisman of social science,
overrides real-world complexity. Hansen (2011) rightly argues that all major theories of
education/work relations, such as human capital, signalling and ‘credentialist’ certification’
are ‘to some degree wanting’ (p. 31). The obverse is also true. Differing research-based
explanations of education and work contribute to knowledge. Some are more explanatory than
others. Confronting the complexity of education/work, the task of research is to determine
which explanation(s) are primary, not to impose an exclusive straightjacket on the material.
It is not the purpose here to outline an alternate theorisation to human capital economics.
However, an alternate approach would be grounded in a meta-method that would use a semi-
open analytical system or model, admit multiple theories rather than one exclusive theory, and
draw on both quantitative and qualitative research and combine their insights. Statistical
 15

reasoning would have a modest role. In slicing into parts of the empirical terrain, statistical
studies can be suggestive. For example, in research on top-end graduate incomes, the findings
become interesting where the linear patterns break down. The limits of statistical analysis
show not when it is used for specific inquiry but where it purports to provide a holistic
picture, when it is substituted for an historicised synthesis, and multi-variate modelling and
calculation are used as a substitute for more difficult processes of complex judgment. The use
of multi-variate analysis should be limited to instances when the variables are independent.

Notes

1
This is an extended version of the keynote address to the annual conference of the Society
for Research into Higher Education, Newport, Wales, UK, 9 December 2015. Thank you to
Helen Perkins.
 16

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