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date: 19 March 2019

Abstract and Keywords

The chapter begins with an introduction of the basic Mincer, Shultz and Becker human capital model. Section 2 discusses two theories that question the model’s link between education and labour market skills. The first theory argues that the education is a device to signal to potential employers that the individual has high natural abilities that are unobservable to the employer while the second argues that education sorts workers into different labour markets that are segmented by wider socio-economic forces. Section 3 considers two more recent developments. The first involves sequential analysis in which the decision-maker learns more about his or her abilities and opportunities as a result of participating in education or training, while the second uses a ‘skill ecosystem’ metaphor to express how educational institutions, students, employers and policy makers can combine to sustain a high-skills, high-wage equilibrium or reinforce a low-skills, low-wage equilibrium.

Keywords: ability, education, human capital, labour market segmentation, signalling, skill ecosystem

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