The role of education in the labour market : an empirical analysis

It is generally accepted that a more educated workforce can provide more economic growth. However, the extent to which personal benefits outweigh the social benefits of higher education has become not only an economic issue, but also a political issue. Voicing screening sympathies, Chancellor Kenneth Clarke asked 'why should bus drivers pay for the education of lawyers?' when cutting student grants in 1993 [The Economist 22/4/95]. The screening theories of the 1970's posited that, in some circumstances, if higher education was only signalling and not improving a person's ability, then society may be better off without higher education. A less extreme view is that some component of education acts solely as a signal and is socially worthless. There has been relatively little attention paid to testing the role of education in the labour market of the United Kingdom and Italy. One reason may be the shortage of suitable data sets available for such tests. This Thesis utilises UK and Italian data sets and aims to redress some of the imbalance in empirical work which tends to centre on data from United States. It is important to test the educational screening hypothesis in the context both of revisions in UK government policy towards the funding of higher education and the aim of convergence of labour market conditions within the European Union. The key objective of this Thesis is to investigate the role of education in the determination of wage rates for full-time work in the UK and Italy. The empirical analysis generally supports the hypothesis that education has both a screening and a productivity augmenting role.