Essay - Human Capital - Signalling Models - Indigenous disadvantage In Employment - Assessment Answer

January 14, 2017
Author : Ashley Simons

Solution Code: 1CC


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Outline the human capital and signalling models of education choice. Do these models help or hinder our understanding of Indigenous disadvantage in employment? readings: Social Benefits Indigen us Employment.pdf;dn=363028735038386;res=IELAPA

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Human Capital and Signalling Models of Education Choice and Their Application to Understanding Indigenous Disadvantage in Employment

Education is a fundamental human right that every society and the government should strive to provide for its members. Unfortunately, the world has never been a level playing ground for all. Putting this disparity in educational attainment into Australian perspective, Aboriginals and immigrants have a low school attendance than their non-indigenous counterparts. While there are many factors that can explain this discrepancy, physical and financial accessibility of learning institutions are key contributors. However, these alone cannot account for the wide gap in education attendance as well as achievement between indigenous and non-indigenous Australians. Thus, it is important to have a theoretical underpinning, based on empirical and coupled with a thorough understanding of the unique circumstances of indigenous Australians. This paper discusses the human capital and signalling models of education choice and how they can help policy makers understand indigenous disadvantage in seeking employment.

The human capital model posits that when choosing whether or not to undertake a particular kind of education, potential students are economically rational in that they seek to maximise utility (Biddle, 2010). More importantly, they consider education as an investment that should bring about certain returns. Investing in education will bolster a student’s performance in the job market hence; he or she will invest to a certain point where returns to an extra unit of education equal the cost. While the human capital model has contributed widely to the education research and in drafting policies for the sector, it has also been acknowledged that it has its shortfalls. One of the key limitations is the debate as to whether education improves productivity directly or rather serves a signalling or screening tool in which already productive labourers are singled-out (Biddle, 2011).

Therefore, while concurring with the premise of the human capital model, proponents of the signalling model postulate that education also serves as a sorting device for an innate ability (Biddle, 2011). The signalling model holds that organisations infer ability from a person’s education; hence, students opt for an education level in order to show their ability to prospective employers (Biddle, 2010). The earnings returns for high school graduation can thus be considered as the combined effect of accumulating human capital and the effect of being labelled as a graduate instead of a dropout.

According to Biddle (2011), the fundamental premise behind the signalling model is that employers presume that those who have a higher innate ability consider education less costly and thus find it easier. Such individuals, in turn, have a high probability of investing heavily in education than their counterparts who see education as a struggle. An employer is thus more inclined to recruit an individual with a comparably high level of education, not necessarily because their education attainment has rendered them more productive, but because it signals that they were more productive to begin with. The choice of the education model, whether it is human capital or signalling theory that drives disparities in income has crucial implications for policy making in the sector (Biddle, 2010).

Incidentally, if based on the human capital model, if the government is attempting to choose the level of investment in the sector, increases in education that cut across the board should lead to higher productivity in the entire economy (Biddle, 2011). Such returns would thus be a stronger incentive for the government to provide education. On the other hand, if policy-making is guided by a signalling model, which posits that education only influences relative earnings, there would be little incentive since economy-wides increments in education do not affect or have little direct effect on economic growth.

One of the key signals of education attainment at a population level is the percentage of the population that has completed high school. According to the Australian education system, this level is Year 12. Apart from the wide skills and know-how that late secondary education brings, for most jobs in Australia, the completion of high school is a minimum requirement (Hunter & Yap, 2014). This is particularly the case of those jobs that have the highest pay and best working conditions. For other jobs in which completion of Year 12 is not an overt prerequisite, completion of high school is used by individual applicants to show their skill and attitude (Hunter & Yap, 2014).

Notwithstanding the fact most indigenous Australians reside and have access to diverse labour markets than their non-indigenous counterparts, the economic rewards derived from high school completion are almost similar. For instance, according to Hunter and Yap (2014), indigenous and non-indigenous females working in major cities and who have completed high school but have no other qualification earn $ 952 and $ 1005 respectively. On the other hand, indigenous and non-indigenous females who have not completed high school and have no qualification earned $876 and $ 920 in major cities (Hunter & Yap, 2014). This data shows implicates that there is potentially high predicted returns on education investment.

Therefore, from a human capital vantage point, indigenous Australians are not likely to forego school education due to the fact that employment or income benefits of such a decision are inadequate. The economic incentive for education attainment is quite high for indigenous populations. However, despite the direct benefits, indigenous Australians still do not respond to such incentives. According to Gray, Hunter and Biddle (2014), the employment rate among indigenous Australians was at 43.6 percent in 2011, compared to 72.1 percent for the non-indigenous populations.

While the human-capital and the signalling model may point out to the benefits of education attainment, they are inadequate in explaining why attendance among indigenous Australians is still lower than in their non-indigenous counterparts. Biddle (2010) citing the 2006 national census, observes that there was 34.5 percent of indigenous population aged between 15 and 24 participated in one form of education. This rate was less than two-thirds that of their non-indigenous counterparts. On seeking to answer the puzzle of lower education attainment despite proved economic benefits, Biddle (2010) presents three main reasons. Firstly, he argues that Australians are going to school later in life as evidenced by the high participation for those in their twenties and thirties.

The second reason explaining low education attainment among Indigenous populations despite the overt benefits is because of the costs. In this regard, Biddle (2010) considers more than just the financial costs but also the cultural and social costs. Some Indigenous populations may consider the act of enrolling in a school as a sell-out of the community. Most of the resistance has a racial history whereby Indigenous Australians were forced to undertake formal education by the colonial government.

Another reason that Biddle (2010) cites as a major impediment to education attainment is the lack of quality ECD education in the formative years. Most of the low attendance is thus not because parents of school-going age children do not see the rewards of investing in the education, but rather because of the relatively low household income. Moreover, even they complete their education, they experience racial discrimination in the job market more disproportionately than their non-indigenous counterparts, observes Booth, Leigh and Varganova (2012).

In summary, the human capital and signalling models help in comprehending the Indigenous disadvantage in employment. They lay the foundation in understanding the challenges the face, including discrimination and how their lack of educational attainment makes them lag behind compared to non-indigenous Australians. Therefore, policymakers need to consider the economic and social incentives provided by the human capital and signalling model and the unique factors that make schooling challenging for Indigenous populations. These include economic, social and cultural costs, late enrolment, and an unfavourable early childhood experience. Therefore, those tasked with decision-making in the education and employment sector need to include the distinctive features of the indigenous population rather than relying on the overarching premise of the human capital or signalling models to boost educational attainment among aboriginal populations.

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