Limitations of human capital theory*

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 multi-variate 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.