University graduates in certain markets earn less than manual laborers when the supply of high-skill workers peaks during a recession.
April 29, 2026
Original Paper
The Market Determination of Human Capital Value Why Income Is Not Determined by Human Capital Itself but by Labor Market Supply and Demand
SSRN · 6657858
The Takeaway
Education and skills do not possess an inherent financial value that automatically translates to higher pay. Most students assume that getting a degree is a guaranteed investment in their future earning potential. The reality is that income is strictly determined by the local supply and demand for specific tasks at a specific time. When too many people hold advanced degrees during a downturn, the premium for that education vanishes entirely. A degree is only as valuable as its rarity in the current labor market.
From the abstract
Traditional human capital theory, as developed by Gary Becker and Jacob Mincer, holds that individuals with more education, skills, and experience have higher marginal productivity and therefore earn higher average incomes. This paper argues that this proposition is not a universal law. It holds only under specific conditions: a normally functioning or expanding economy, relative scarcity of high-skill labor, and sufficient demand for high-skill jobs. When the economy enters a prolonged, non-rec