As universities across the Commonwealth seek to enhance graduate employability in an era of rapid technological disruption and economic uncertainty, the Commonwealth of Learning (COL) has published a timely and critical review that revisits a key theoretical framework: labour market signalling theory. In the publication Review of the Labour Market Signalling Theory, Professor Bennie Linde – an expert on labour relations from North-West University – South Africa, unpacks how education functions as a signal in increasingly competitive and dynamic labour markets.
Labour market signalling theory, pioneered by Nobel Laureate Michael Spence, posits that education serves as a costly but credible signal of a student’s productivity potential. Employers interpret degrees, credentials and qualifications as indicators of work readiness and future performance. This interpretation is essential in reducing information asymmetry between job seekers and employers, particularly in environments where actual performance cannot be easily assessed in advance. Furthermore, Dr Jako Olivier, COL’s Adviser: Higher Education, notes that “the emergence of micro-credentials also seems increasingly relevant in terms of credentialing of mastery of knowledge and skills in formal, informal and non-formal contexts in smaller units towards recognising relevant productivity potential.”
The COL report highlights the growing mismatch between what universities traditionally offer and the changing demands of the modern workforce. The report specifically differentiates between vocational institutions prioritising job-specific training and universities, which traditionally tend to emphasise theoretical learning and critical thinking. While the latter are foundational for innovation and leadership, they often fail to align with the practical skill sets sought by employers in sectors rapidly influenced by the Fourth Industrial Revolution. The review brings into sharp focus the challenges posed by this misalignment.
Universities are described as “intermediaries” that must do more than simply issue qualifications. They must also ensure that their curricula are transparent, relevant and capable of adapting to labour market transformations. The report emphasises the need for universities to act as signal transmitters and as active signal recipients, adjusting to the evolving expectations of employers and students alike.
The review also addresses a significant gap in the literature: the lack of attention to signals sent by employers. In fast-changing labour environments, students often have little clarity on what skills or attributes are genuinely valued. This highlights the importance of mutual signalling and feedback loops between education providers and industry. In this context, COL has a vital role to play through its work on graduate employability using COL’s employability model and the Skills-based, labour-market-oriented courses: Mapping the landscape, aspirations, and challenges for universities in the Commonwealth research project, which is a joint research initiative between COL and the Association of Commonwealth Universities (ACU). The joint research is expected to inform COL’s future work with universities around skill-based courses.
According to Dr Olivier, “For Commonwealth universities, the recommendations are clear: Institutions should invest in deeper engagement with employers to clarify the skill sets needed in emerging job markets. They must actively communicate the attributes and competencies their programmes cultivate in graduates and should integrate generative artificial intelligence and technological literacy across disciplines. Emphasising ethical standards and academic integrity in higher education will further strengthen the trust in educational signals.”
Ultimately, the review affirms that graduate employability cannot be assumed through credentialism alone. It must be cultivated through deliberate institutional strategies that recognise the value of signalling in the labour market. For universities within the Commonwealth, adopting this approach aligns closely with COL’s mission to improve education quality, efficiency and scalability through open and distance learning. It also ensures that graduates are better prepared to enter, remain and thrive in the evolving world of work.
