Beyond skills: Employer-perceived labour substitutability and graduate competitiveness in high-cost labour markets

Abstract

This paper examines how graduates from high-cost labour markets can remain competitive amid global wage arbitrage, generative AI-enabled task transformation, and cross-border talent substitution. Using Hong Kong as a theoretically significant case, it reframes graduate employability as a problem of cost-adjusted graduate value and employer-perceived labour substitutability rather than skills possession alone. The paper adopts a conceptual and integrative review approach, synthesising literature on graduate employability, graduate capitals, human capital theory, signalling theory, strategic human resource management, global labour arbitrage, and AI-enabled knowledge work. It develops a conceptual model and propositions explaining how high-cost graduates can reduce perceived substitutability and strengthen competitiveness. The paper argues that graduate employability in high-cost labour markets is shaped by employers' assessment of whether graduates generate sufficient value relative to cost, and whether their work can be replaced by lower-cost labour or AI-enabled alternatives. It introduces employer-perceived labour substitutability as the central theoretical mechanism and proposes the VALUE Framework, comprising Verifiable productivity, Adaptive skill stacking, Local-regional market intelligence, Unoutsourceable capabilities, and Employer-relevant signalling, as a substitutability-reduction model. The framework provides actionable guidance for universities, programme leaders, employers, HR managers, and policymakers, emphasising evidence-based value creation, AI-augmented productivity, contextual intelligence, and strategies to reduce perceived substitutability. The paper contributes to graduate employability and management literature by introducing cost-adjusted graduate value and employer-perceived labour substitutability as new theoretical constructs, extending human capital and signalling theory to account for global labour arbitrage and AI-enabled substitution.