← Back to Publications List

The TwoPillars Model of Human Capital: A Framework for Addressing Skill Mismatch in the 4th Industrial Revolution

Students & Supervisors

Student Authors
Sheikh Nabil Rahman
Bachelor of Social Science in Economics, FASS
Supervisors
Dr. Farhana Rafiq
Senior Assistant Professor, Faculty, FASS

Abstract

In light of today’s rapidly evolving technological landscape, traditional education systems are struggling to prepare individuals for the labour markets that demand more than just formal knowledge. This paper presents the ‘The Two Pillars Model of Human Capital’ which builds on the neoclassical growth model of Solow, the human capital emphasis of Lucas, and the endogenous technological progress of Romer, while adopting the Cobb–Douglas production function form. While earlier models of human capital may have treated formal education and practical skill as a single, undifferentiated stock, the disconnect that we now observe between educational attainment and employability in today’s labour market proves that this assumption is outdated. Skill mismatch is a global issue where graduates often lack practical skills like communication, leadership, and technical expertise. However, individuals with adaptive and technical skills can generate income through digital platforms, freelancing, and entrepreneurship, even without formal education. This shift requires a new modeling approach called the Two Pillars Model of Human Capital. This model disaggregates human capital into foundational knowledge from formal education and adaptive skill capital, which includes practical, income-generating abilities relevant to a person's profession. This provides a more accurate representation of how individuals generate economic value in the modern world. The model posits that adaptive skill capital can generate income independently of formal education and enhance the value of formal knowledge. It also shows greater spillover effects and endogenizes technological progress, suggesting that skilled populations lead to easier future innovation. This approach deviates from traditional growth models by highlighting increasing returns to scale. The paper suggests that individuals are strategic agents who allocate resources between education, adaptive skill formation, labor, and consumption, reducing youth unemployment, easing government employment pressure, and increasing foreign currency inflow. Investing in adaptive skills is a crucial economic strategy, not just an educational reform.

Keywords

Human Capital Endogenous Growth Model Skill mismatch Educational Reforms 4th Industrial Revolution

Publication Details

  • Type of Publication:
  • Conference Name: 2nd INTERNATIONAL CONFERENCE ON SUSTAINABLE EDUCATION 2025
  • Date of Conference: 24/09/2025 - 24/09/2025
  • Venue: Hybrid
  • Organizer: INTI International University, Malaysia
View on Publisher