by - Jayshrita Bhagabati
When we discuss the various issues associated with education, perhaps one thing we would never argue about is the very importance of education itself. Going to school is probably considered the bane of their existence by almost every kid who sets foot within the confines of that insufferable place (!) but before long an appreciation of the value of formal learning does awaken in the minds of almost every student, so that hate it or love it, we tend to accept the process of going to specific educational institutions as an integral part of this journey called life. This happens to be especially true for countries like India which place an overriding importance on educational degrees over most extracurricular activities, which in turn accounts for the more impressive performance of India in this field vis-a-vis others.
The human capital
view stresses the importance of the development of skills in production
activities. When applied to the field of education it says that getting educated
is desirable since it raises workers’ productivity and hence their demand by
firms and consequently their wages. In short, the human capital theory argues
that an educated population is a productive population and increasing the level
of formal education though public investment is naturally desirable for greater
economic prosperity of a nation. The concept has relatively more importance in
labour surplus regions since the surplus human resource can be transformed into
human capital with effective inputs of education, health and moral values.
When we discuss the various issues associated with education, perhaps one thing we would never argue about is the very importance of education itself. Going to school is probably considered the bane of their existence by almost every kid who sets foot within the confines of that insufferable place (!) but before long an appreciation of the value of formal learning does awaken in the minds of almost every student, so that hate it or love it, we tend to accept the process of going to specific educational institutions as an integral part of this journey called life. This happens to be especially true for countries like India which place an overriding importance on educational degrees over most extracurricular activities, which in turn accounts for the more impressive performance of India in this field vis-a-vis others.
Lesser known is the
fact that there are two competing theories on why education is important, one
known as the human capital view of education – the better known and easily
deducible one- and other is the signaling theory of education.
The human capital
view stresses the importance of the development of skills in production
activities. When applied to the field of education it says that getting educated
is desirable since it raises workers’ productivity and hence their demand by
firms and consequently their wages. In short, the human capital theory argues
that an educated population is a productive population and increasing the level
of formal education though public investment is naturally desirable for greater
economic prosperity of a nation. The concept has relatively more importance in
labour surplus regions since the surplus human resource can be transformed into
human capital with effective inputs of education, health and moral values.
In contrast, the
signaling theory of education believes that education does not enhance
productivity and firms merely use the educational credentials of prospective
employees to distinguish between individuals with high natural ability and
individuals with low natural ability. Assuming that there are just these two kinds
of people who exist in the world, it would cost the people with high natural
ability less time and effort to acquire an education than the latter. Hence if
education is sufficiently costly for the low ability individuals (in terms of
the above factors) only the high ability individuals will invest in the same,
thus signaling their higher productivity to the employers. The concept was
first introduced by Nobel laureate Michael Spence who discovered even if
education did not contribute anything to an employee’s productivity, it could
still have value for both the employee and the employer by allowing ‘deserving’
employees to get their due (though it might not always work perfectly such as
when the high ability individuals are unable to afford education or the low
ability individuals are able to get private schooling).
The significance of
the signaling theory is that the public funding of education, especially of
higher education, is questioned. However since one cannot disqualify the human
capital view of education entirely since it has been found to hold water under
empirical studies and historical evidences and the relative impacts of the two
processes are unknown, the main question that remains now is regarding the
appropriate level of public funding.
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