Bryan Caplan  

Education: Practicality vs. Rate of Return

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I'm fortunate to have Prof. Karl Smith of Modeled Behavior reading my posts on education. In response to my claim that educators overestimate the practicality of education, Smith writes:

I think those who spend their lives in academia will tend to underestimate the return to education.

As Card points out the return to education is higher for those who have limited access. Moreover, academics tend to enjoy the education process and will seek education beyond the point where the marginal pecuniary return is exceeds the marginal cost.

This will lead academics to conclude that education doesn't pay.


This is an interesting point - and one I'll address at length in my book. But I was talking about something else: using personal experience to estimate the practicality of education - the extent to which you take the stuff you learned in class and actually use it in real life. And on this topic, it's hard to deny that professors' experience leads them to overestimate. After all, I use my undergrad Industrial Organization every time I teach IO. How often do my fellow classmates from Theodore Keeler's 1992 IO class do the same?

P.S. Karl, if you're reading this, please send me your email address - you're hard to track down. :-)


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COMMENTS (9 to date)
Scott Clark writes:

I suppose I am conflicted on this.
I have to say Prof., I use your lessons often enough, in fact just the other day I had to explain to a co-worker that the wage gap between men and women is just a statistic and not a cause for alarm, that it is just an outcome of people making different choices, about job flexibiltiy, coming in and out of the workforce to raise a family, etc, and that if you control for those choices, the gap disappears to less than the margin of error. I beleive I was first exposed to that in your Labor Econ class. I don't think that tidbit is going to get me a raise, but the ability to get to the heart of a problem and not get stuck at the edges is a skill (derived from the class lectures) that most certainly will. Plus, it is valuable to me to have something to discuss, so that is practical. Tom Rustici's Problems in Economic Policy classes were the best offering at Mason, one for the sheer entertainment value, and two for the practical skill of learning how to cut through bullsh-t.
Now I am in the School of Management getting my MBA, and I know my cohort and I are just there to send signals to our respective employers. But from time to time, I do happen to come upon some nice idea framing that I can use at work, stuff that I can apply right away, other stuff that I can tweak to make fit my and my employer's needs. There is a whole host of busy work, there is plenty of questions and assignments just for the sake of meeting deadlines and following rules, but they manage to sprinkle enough gems throughout to keep it interesting.

As far as systematically over- and under- estimating practicality of the educational content, I suppose I'd have to see the all estimates. I am pretty sure my fellow MBA students are not over estimating the practicality. From my discussions with them and in doing all the group work, we all seem to understand that this is about signalling, about differentiating ourselves from the rest of the pack, and/or improving our odds of being in the right place at the right time. That goes the same for the people who were never exposed to the signalling model of education in their undergraduate studies. So there was another practical lesson I got from you, not to set my expectations too high.

mjh writes:

I majored in CompSci in college. I continue to use a very large amount of information learned in CompSci on a daily basis. Of course, some of it I don't use, but that's by choice. I got a basic stable of education in CompSci and then when I got in the field, I specialized. I might have chosen to specialize in a different area. I can't say that it contains 0 utility, even though I don't use it regularly.

That being said, I took a large number of classes that were not related to my major which I simply don't use at all, and really don't ever expect to use. Chemistry was interesting, but of virtually no utility to me now. I've forgotten almost all of it. Same goes for Scandanavian Lit. By far, the most utility I received came from my major.

Marc Resnick writes:

I am going to succumb to the small sample size bias and reflect on my own experience. I see many of my students taking what I teach them and making a ton of money 3-5 years out of school. This is even true for many of my BS students. Of course, they have to combine the education with their own drive and talent. But there is pretty good evidence that their education plays a strong role.

I see the practicality of their education staring me in the face on a regular basis. At least I make them buy me a beer every once in a while as payment.

Robert Speirs writes:

Seems to me that graduates in a particular discipline, especially, as in my case, law graduates and attorneys, are exposed to a large number of cases where education doesn't help students get good jobs. The horror stories of MBA's and JD's working as waiters are well known to other graduates of similar programs, but may not be so obvious to those without degrees. Of course these stories may be exaggerated and may ignore the long-term value of the degree.

Steve Sailer writes:

I took a number of Industrial Organization classes at UCLA MBA school, but by the time I had risen high enough in the corporation I went to work for after graduating that I could influence how it was organized, I had forgotten what I learned.

Fazal Majid writes:

The problem with higher education is the idea that you have one solid contigous block of education, followed by work. Continuing education is mostly a joke, in no small part due to employers' myopia, even though it is the only viable way to make classes relevant and useful.

With rare exceptions (MBA programs), we put kids with no work experience whatsoever in classes that they are not motivated to study because they have not seen the real-world need for them. Also, since they do not know what matters in the real world, they cannot hold professors to account for pontificating on their pet theory or thesis instead of what matters. Students are the ones footing the bill, after all.

trumpetbob15 writes:

To use myself as a small sample, as a recent BBA grad in accounting, I am still trying to find a job. Out of all the classes offered the one that would have helped me the most (other than the basic accounting classes) would have been an internship. However, due to class requirements at my university, internships did not double-dip and fulfill two general education requirements and at the same time, in order to take an internship, I would have only been able to take 3 classes that semester instead of 5. Thus I was persuaded through opportunity costs to take a diversity class, even though right now, the internship would be much more useful.

p writes:

I agree that SOME/MANY educators overestimate the practicality of their subject matter which they are teaching. Of course we all have asked in class "when will I use this in the real world?"... and often the response is, "not often, but you might need it in the next level class."
I understand that the education system is supposed to expose students to a broad spectrum of subject matters and prepare them for the diversity of the "real world." Would it not make more sense to then place less emphasis on these subject matters (such as health class or studying ancient literature and poetry) that will rarely be used out in the big bad real world? After all, those little grades have a big impact on students’ future.
In responce to "I think those who spend their lives in academia will tend to underestimate the return to education. As Card Moreover, points out the return to education is higher for those who have limited access."
....I believe those who have dedicated their lives to academia DO acknokedge and value the return to to eduction, yet from the prospective of a student, many of us have experienced the brilliant professors who couldnt teach the material to their students and on the opposite side the teachers/professors who could explain the subject to any student in a variety of ways often because they are able to step aside of their advanced education and realize what is practical for the students.

Jessica Daniels writes:

I first of all feel that the return on your education level is also affected by the field in which you enter the workforce. I know of some individuals who have graduated and went on to work in fields completely unrelated to their academia and have relied heavily on on-the-job-training. your education, just like everything else in your free world is going to be just as valuable as its implementation. Kinda like vaca leave...use it or lose it!

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