The Effect of Higher Education on Productivity of Iranian Industries: A Comparison of Human Capital and Filter Theories

While the human capital theory introduces higher education as a factor of productivity enhancement of labor force, but, by contrast, the filter theory denies this idea. The former contends that education as a whole phenomenon is an investment in human beings that enhances their productivity. On the other hand, the latter claims that education exclusively in higher levels has no impact on labor productivity because higher education is irrelevant to productive potency. The aim of this paper is to investigate that challenge. Since the industry sector is the most important sector of any economy and its reliance on university graduates is very high, the viewpoint of two opponent theories is tested by using the data on Iranian industries in period 2003-2011. Findings suggest that proportional increase of university graduates leads to higher levels of productivity. This observation is specifically perceived in BA (BS) and MA (MS) levels but not in PhD level.