Does Human Capital Theory Explain The Value Of Higher Education? A South African Case Study

Abstract

A perennial debate in the economics of education is whether human capital or screening/signalling theories best explain the value of schooling and hence the private demand for, in particular, higher education. Human capital theory proposes that formal training such as that offered by higher education institutions improves the productive capacity of individuals. Screening theory, on the other hand, posits that the value of higher education credentials flows primarily from their value as signals to potential employers of the abilities of the holders of such qualifications. Following the application of Wiles’ (1974) test and regression analysis this case study finds that it is probable that both human capital and screening theories account for the economic value of higher education in the perceptions and experiences of a local cohort of recent Durban University of Technology graduates. This finding, in spite of its empirical support, relies on a certain amount of intuition necessitated by technical and analytical constraints that are discussed in the paper.