Bryan writes,
If Arnold's story is right, there wouldn't really be a trap. Some firms are bound to be run by people who value profits more than pride in their alma mater. These firms will do what Arnold recommends: Hire talented people regardless of what diplomas they hold, and make money hand over fist. Faced with such competition, firms run by Harvard men for Harvard men would financially bleed to death.
...In contrast, if the signaling model is right, the Harvard men are, on average, really worth the extra money.
A lot of companies do hire on the basis of objective measurements rather than credentials, and they do make money hand over fist. I don't think that there is any evidence that Harvard MBA's help small start-up companies. Harvard MBA's matter for getting hired at consulting firms like McKinsey or at Wall Street mergers and acquisitions departments. It's hard for a new competitor to get traction in those fields. So I think that a credentialism trap in those cases could exist.
But admittedly the Harvard MBA is not the prime candidate for a credentialism trap. The most plausible example is education. In theory, there is a profit opportunity from starting a high-caliber university where you hire professors who are not Ph.D's. But try getting accredited, much less recognized as high caliber.
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“But admittedly the Harvard MBA is not the prime candidate for a credentialism trap. The most plausible example is education.”
A Harvard MBA is an earned degree. You can take it for granted that such a graduate is very bright and hard working. They may be inclined to place their wet finger in the air to see which way the wind blows. Nonetheless, the credential must be taking seriously. Not so, the degree in education. This has become a total joke. The same may hold true for most liberal arts degrees. And yet, these recipients are the only ones able to obtain certain jobs.
I have yet to read David Horowitz’s recently released The Professors. He deals with the moral and intellectual corruption pervading so many of today’s universities. This work probably should be on everyone’s “must purchase” list.
One important thing to think about when considering what profit opportunity really exists: how does the military compare as a signaler? When you join, you're put through physically and mentally taxing ordeals. They administer an IQ test and check your background. And conformism is certainly stressed. So why don't employers take military experience in lieu of a degree? Or do they?
Silas - depending on the job, some employers do prefer military veterans over in-experienced college grads. I worked in telco for many years and the technicians were probably 75% military.
Just wanted to say that I found your discussions on credentialism to be the most interesting and enlightening yet on EconLog.
Keep up the exceedingly good work!
I know that the Marine my brother's hedge fund hired is very well liked.
"well regarded" would be more appropriate.
I think you're discounting the number of competencies and qualities that are signaled by an individual having completed a Ph.D. when you imply that the primary motive for a bias in selecting them is university accreditation issues. (admitted bias: I hold one.)
You're also apparently not aware of the degree to which this value niche is already exploited by universities. Have you seen the high % (and growing higher) of courses taught by graduate teaching assistants at most major universities?