Education Signaling: Is Entrepreneurship a Solution?

Brian I believe that you are right. To turn it around ask Arnold why credentials from for profits schools are so despised. It is not because they do not teach adequately it because they are not an accepted as tests because of the obvious conflict of interest.

You can't discount the hazing factor. People force their subordinates to do the same things even if it is utterly pointless.

What are you defining as the tribe? If you make $150,000 a year running a landscaping business with a high school education, you're likely to be outside the tribe's walls.

My first employer (software) didn't care about college. They gave IQ tests, and looked for signs of "genius" on the resume. I know at least two people there who actually quit university to work for these people.

I don't know why other software companies don't do the same -- software is one field where you can learn the basic skills on your own. Indeed, it's a bit like athletics -- if you aren't a programmer by the time you're 18, there's probably no point trying to turn you into one.

There is also an element of bonding ones qualities involved in going to an expensive school, particularly at the MBA/JD level. If you don't think you will be able to fool enough people long enough to earn back the investment in getting the degree, you don't do it.

Phil--more companies don't do the same because of the legal climate. Griggs vs. Duke Power didn't explicitly ban the use of IQ tests for hiring, but it made it sufficiently difficult that few businesses are willing to risk a major legal hassle to do so.

Bryan, what do you think Porsche SUVs are? Or Baby Gap? Or prep schools? Or being part of Paris Hilton's posse? Or midwestern beauty pageants? Or midwestern football teams?

The list goes on and on. The amount of entrepreneurial effort that goes into parental class signaling is probably over 50% of luxury purchases. I can't imagine this NOT being obvious on its face.

The obvious model for why entrepeneurs can't reinforce class norms cheaply is Becker + Schelling -- people have multiple selves, whose interests often do not coincide (eg, a dieter tempted by a piece of cake). Education and other forms of enculturation are a way of endowing one of your selves social capital, so that it can prevail more frequently in that intimate contest for self-command. There's no profit opportunity here because your short-term self and your long-term self can't dissolve their union.

But why does school have to go on for years? Simple: Even a lazy weirdo can pretend to be hard-working and conformist for a few months. Now suppose an employer wants people at the 90th percentile of conscientiousness and conformity. He's got to set the educational bar high enough that 89% of people give up despite the rewards.

So education is more sorting than signaling. We force the lazy to quit. But then what is the point to a selective institution? Isn't what you want a difficult institution? And what's with the research professor thing?

Or as I ask, why is it that bright kids in North Carolina dream of going to Duke, not Davidson? Davidson is by almost all measures a much tougher school and the faculty are actually concerned that you do the work.

I am in no way trying to knock the faculty at Duke, but if you were faced with those tenure requirements and you had to choose between spending your marginal hour grading exams more thoroughly or conducting your research which are you going to choose?

[Comment deleted for supplying false email address. To restore this comment, email the webmaster at econlib.org--Econlib Editor]

Conscientious people can't cheat on IQ tests, but high IQ people can cheat on short paper and pencil tests of conscientousness by figuring out the right answers to make themselves sound hard-working and honest. There aren't many smart sociopaths, fortunately, but the ones who do exist can be very dangerous to your organization. So, it makes sense to impose lengthy requirements on new hires such as college degrees.

Becker and Murphy attribute the rising income gap as an outcome of the increasing demand for skilled labor (with skilled labor defined as those who get more years of schooling).

As I am a believer of the signalling theory of education, the puzzle is why there is a surge in the demand for more signalling among job seekers? Is it the changing structure of the economy (computer, internet...service sector growth in general)? What is so special about an investment bank job or a computer coding job which requires more signalling on the part of job seekers' type compared with say a car manufacturing job in Detriot? I don't have the answer, do you?