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Review of the Labour Market Signalling Theory
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Abstract
In this research, labour market signalling theory was explored, and its critical role in connecting education and employability was emphasised. Originating from Michael Spence’s foundational work in the 1970s, the theory highlights education as a costly and credible signal to reduce information asymmetry between job candidates and employers. Employers use these signals to evaluate a candidate’s potential productivity and performance, minimising risks in the hiring process.
The report underscores the significance of post-secondary education in labour market signalling. Vocational institutions prioritise technical, job-specific training, creating workplace-ready individuals. In contrast, universities emphasise theoretical knowledge, critical thinking and research, which, while valuable, often misalign with immediate labour market needs. This dichotomy creates a skills gap, particularly in rapidly evolving markets influenced by technological advancements such as the Fourth Industrial Revolution (4IR), which includes artificial intelligence (AI), robotics and automation. The Covid-19 pandemic further accelerated these changes, amplifying the importance of adaptability, reskilling and lifelong learning.
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Pan-Commonwealth
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2025
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Commonwealth of Learning (COL)