The Future of Education

The principal issue addressed in this article is whether or not education directly creates productivity and earnings as taught by traditional human capital theory. If not, an alternative argument could be that employers use education as a screening device to select employees. In order to test these two alternative hypotheses, the study applies two different approaches. Initially, the Psacharopolous test is used to test the weak and strong versions of the screening hypothesis. The findings of the study show that education acts as a screening device for lower levels of education, like primary, middle, secondary and higher secondary education, but for higher levels of education like, diploma, graduation and above degree, it acts as an investment. The results do not support the strong version of screening hypothesis. To substantiate it further, the decomposition technique is used to compare the income for self-employed and salaried employees; the findings do lend support the screenist theory. Overall, the findings of the study give mixed evidence as it supports weak screening that operate at lower levels of education, while for higher education, education acts as an investment which is consistence with the argument of the human capital theory.

Keywords: Education; Screening; Self-employment; Wage Employment; India;