Bryan Caplan  

Education and Signaling: Bill Dickens Replies

The Desire to See Others Suffe... Exchanging Nickels for Dimes?...
Last week, Bill Dickens critiqued the signaling model of education, and I replied.  Here's Bill's rejoinder:

Bryan has said a lot nice things about me in this space. Let me take this opportunity to return the favor. There are many different types of friends. One of the best is someone who has a completely different and well thought out view of the world - someone who consistently comes up with ideas that surprise you. Bryan notes I was his Econ 1 teacher, but at this point it would be hard to say which of us has learned more from the other. Besides being someone with whom I share a number of recreational interests, Bryan is one of those very valuable friends who disagrees with me about a lot, but never lets the disagreements get in the way of our friendship. I'm very proud to be "sitting on his shoulder" and grateful for the opportunity to discuss these issues with him on his blog. Also, I'm impressed by the names I see commenting on this blog. Bryan, you have a distinguished readership. Congratulations.

As I understand your position it is that private returns to education mainly reflect inefficient signaling. That is that employers are willing to pay for schooling not because students learn very much, but because completing schooling signals some traits (intelligence, perseverance) that are hard to observe otherwise. Further, you must believe that there is a more efficient way to solve the problem of figuring out who is fit for what type of job than running them through the educational gauntlet. I take it from your reply you think less schooling and more work is the way to accomplish this.

My position is that students actually learn things in school that are valuable and that that accounts for the vast majority of the private return to education. In addition, I believe that increased wages are only part of the benefit of education to the individual (the private returns to education) AND that there are social returns to education above the private returns so that the total value of education to society exceeds the individual returns and considerably exceeds the increase in wages we observe.

There is a third position, and I will claim it as my fall back position. That most of the return to education is due to it signaling desirable characteristics, but that there is no more efficient way to sort the capable from the incapable. If that is true then what we have is the best we can do even if school produces no value other than information about people's innate abilities and dispositions.  

In your reply you stated that education's value added was maybe 20% of the private returns to education. Does this mean that you think fully 80% of the value of time and other resources spent on education are wasted? Wow! Given how much we spend on education and how much time we spend in school that is an enormous inefficiency!  How is that possible? The strongest argument for either of the two positions I'm defending is that if there was a much more efficient way to do whatever it is that education does, somewhere some society would have found it and we would all be trying to copy them. Here in the US we've now had at least 50 to 100+  years of experience with mass education and we haven't been able to find a better way? (I say 50 to 100+ since universal grammar school has been around much longer than cheap large scale higher education.) Not only are other countries not developing radically different models, they are sending their children to this country in droves for this supposedly useless education. Bryan, I hope you appreciate the irony here. In our first public debate you are taking the side of widespread market failure while I'm defending the ability of private ingenuity to work its way around whatever problems the world throws in its way - the reverse of our usual roles. I must say I'm enjoying being in this position because I normally grant that it is the person arguing against efficiency who has the burden of proof.

Let me take a guess how you would shoulder this burden based on your response. Misguided government policies of subsidizing the sort of education that teachers like locks in a major competitive edge for the public education model. It's not worthwhile for businesses to set up their own screening mechanisms as long as the state is doing it for them and private education has to mimic public education for credibility. Further, to the extent that education is supported by charitable giving there still is little accountability for outcomes. Finally, any attempt by the private sector to find a more efficient way of screening would be subject to adverse selection (you said only losers would apply to your "quickie tech"), and besides, anyone who went to an alternative school would be branded a weirdo.  I'm not buying it.

First off, if inefficiency is of the magnitude I believe you are claiming then public support of the system wouldn't be near enough to keep it in place. We typically figure that roughly half the cost of education is the time cost of those attending and that is not normally subsidized. So assume we are talking about free public education. If 80% of the total value of education is inefficient signaling and government is paying the monetary cost, but not for people's time, that means that an efficiently functioning private alternative could still save people  60% of the value of their time (private expenditure of time is 50% of the total cost, of that 30% is being wasted on inefficient signaling so 30/50=60%). That is a lot more than a $20 dollar bill lying on the street. It's more like a stack of cash several stories tall. Why isn't anyone picking it up? But of course the private incentives to find a more efficient solution are even stronger than that. There is a thriving private sector. Many of these institutions survive almost entirely off tuition. And you argued in your response that the current system isn't very efficient at producing the 20% of value that it does produce (or in doing the screening that it does).

So why doesn't the private sector respond? You seemed to imply that any attempt to do the screening cheaper would be subject to adverse selection (your indictment of Quickie Tech) and would also have reputation problems (graduates are weirdoes). I don't think it takes much imagination to get around the first problem and I don't think the second problem is real.

To begin with, you don't have to jump all the way to the most efficient possible system in one leap. A small innovation that gives you a slight advantage should be enough to allow a private institution to prosper and shouldn't cause a big adverse selection problem as so many factors go into college choice. I work for Northeastern University which has for decades distinguished itself by offering "co-op education." Students spend about a year during their time at the university working in jobs related to their field of interest. NU does OK (we have a niche market), but we aren't revolutionizing the way universities do business. If work was so much more productive at teaching what needs to be taught you would expect we would have a real leg up on other institutions. From what I can tell, our graduates don't do much better or much worse than other universities for time spent.

And if experimental schools are ruled out because they signal that the graduates are weirdoes you would hardly know it from the very large number of experimental schools of all sorts - private and state funded - at all levels of education. In particular there are all sorts of experiments integrating school with work through co-ops, apprenticeships, shared facilities etc. None has shown itself to be particularly better than the standard curriculum as far as I know. BTW, I'm one of those weirdoes - I got my BA at Bard College at a time when it was known as an "alternative" college. For every person who thinks you are weird for going to an alternative school there is someone who thinks you are interesting. Same goes for funders. Bard has raised a ridiculous amount of money from private donors over the last 35 years precisely because of its reputation for innovation (including running an "early college" - Simon's Rock - that allows students to skip their last year or two of high school and go straight to college. Simon's Rock neither seems to neither falter nor flourish but does seem to have found a niche).  

But why not an instant jump to a much more efficient format? Instead of "Quickie Tech" why not "Elite Accelerated Tech."  "We teach you all the material in half the time. We hold our students to the highest standards, but if you've got what it takes you can make it through and demonstrate to the world that you are one of the elite." Since you think that most schools are way too soft on students shouldn't this work?

So why haven't an army of elite accelerated techs taken over the market? I have an explanation. As you point out, the existing school system is really very bad at screening in that standards and expectations are much lower than in the world of work. Some of the very highest reputation private schools are known for being very forgiving of less than optimal performance and aren't very demanding in terms of the amount of work they expect students to do. That is a terrible way to run a screening system, but exactly how you want to run an education system! As you know, Bryan, I moonlighted as a flight instructor for several years. People most certainly don't know how to fly airplanes when they start flight training, but a few months to a year later they do. If you work for an airline you're going to be bounced out of service if you get an airplane into an unusual attitude. But if you do it to your flight instructor during training you will likely get a laugh and be told to try again (maybe with a little less left rudder). When you are teaching people you give them a lot of slack and then give them feedback on how well they are doing so that they can find out what works for them. As you know from my original post, what I think people are mainly learning in high school and college is work habits that allow them to function well in the sorts of jobs they will get. I think schools are more forgiving of less than optimal performance than work because they are teaching these characteristics. If they were sorting to the degree that you believe they are then they would be more demanding.

Are they effective? Robin Hanson has noted how businesses in countries with less well developed school systems complain about how undisciplined the workers are. This is often cited as one of the major reasons why labor in the developing world doesn't attract more investment despite wages that are a fraction of the developed world. Would this really be a problem if the vast majority of the population is just needed to signal their ability to work in factory jobs by attending high school? Also, why was the business community so interested in establishing the system of public education in the form it was set up (see Bowles and Gintis, Schooling in Capitalist America p36-44)? You might argue that the American education system envisioned by the progressives of the early 20th century looked more like a screening system than the one we have now as the ideal was to enforce tougher standards with greater discipline. Yet instead of moving further in this direction, both the public and PRIVATE education sectors have moved away from it. If this has made our educational system much less productive you wouldn't know it from the rate of productivity growth in the economy. And again, our system of higher education attracts enormous interest from abroad.

Your main indictment of my argument that education produces value was that work could better teach the sorts of skills that I was claiming schools taught. Back at you brother! The same could be said for screening. I would argue that screening could be done at much less cost, relative to education, in businesses.  If it really does take 4 years of HS to make a good blue collar worker and then another 4 years of college to make a good white collar worker that would be a lot of expense for a business - even if they could cut that down to 2 years. Having to find roles for marginally competent people where their mistakes wouldn't hurt the business while they were learning would be difficult. But if all you have to do is screen out the 15-40% (depending on which state you live in) who don't have the stuff to graduate high school, you ought to be able to do that relatively cheaply. You have argued yourself that schools aren't very good at screening, so why couldn't businesses take over the job? They should be much better at it than schools for precisely the reasons you stated (schools aren't screening for the same skills and have lax standards). If the problem is signaling - getting people to reveal their true type - then businesses could offer deals where people start off receiving very low wages (or even paying the business tuition for training) while demonstrating their ability. The pay off would be a great high-paying job once one has shown one's metal. If you are right, Bryan, this would be an enormously more efficient way to do things. While it is true that public education is subsidized, and therefore pays a good fraction of the cost of providing the signal for some people, there is a thriving private education sector (particularly for higher education) that survives largely on tuition. Why wouldn't businesses team up with these institutions to set up apprenticeship programs or the like if that was so much more efficient? Your argument that innovation is impossible because of adverse selection is untenable in the face of massive amounts of innovation in the educational system everywhere.

That's my case for my main line of argument, but I don't want to seem to be giving up on my arguments that a lot of the curriculum in higher education is directly applicable to work and that the cultural aspects of the curriculum help to extend our language and provide large network externalities by doing so. I don't have the time right now, but one of us should go through the courses taken by students in different majors and figure what fraction directly relevant to their work. Engineering, physics and math courses taken by engineers or people going on to graduate work in the hard sciences would have to be counted. So would math courses for people going on to graduate work in economics (and maybe even some economics courses). Wouldn't we count business and stat courses for business majors (and maybe others as well)? And what about professional schools, are you counting them in the 20% of actual value added? Since engineers and pre-med students tend not to take many arts and literature courses, and since artists don't tend to take many math courses, that also cuts down on the amount of "wasted" course work. I would be surprised if you wouldn't agree that way more than 20% of the courses taken by college students do teach them things they need in their work. Personally I would say that close to 100% of the courses I took in college get used in my professional work (the research, not the teaching part).

I know, you and I are special cases - nerds who by spending our whole lives in (or close) to higher education are different from nearly everybody else. Let me toss the "E" word at you; Elitist! The ubiquity of literary references in popular culture says that there must be a lot of people who get it (I doubt I could count the number of times I've seen references made to Yeat's "The Second Coming" in the last couple years). Not necessarily the average person, but a lot larger fraction of the population than those who have Ph.D.s.  Lady Gaga videos are full of classic film references - is she trying to endear herself only to film professors?  

No, I don't suppose that the average college grad could explain the categorical imperative, but in my time in government, and in my time in policy making circles I would guess that nearly everybody I met there could define it and discuss its shortcomings (I didn't deal much with congressmen so don't think I'm referring to them, but I am referring to the majority of the people advising those congressmen and the people I dealt with in the executive branch, in think tanks, and in the press). There are a lot of words in the dictionary that the average person probably never uses. That doesn't mean that it isn't valuable to know them. You're going to see a lot of them if you endeavor to be involved in civic or cultural life at an above average level. It's not just an analogy. People learn a lot of vocabulary in school too. 

So Bryan, ready to do some back tracking? I think you've got to at least admit that the educational system is a lot more efficient than you originally claimed. Otherwise I think you have gotten yourself out on a limb that won't support the weight.

Comments and Sharing

COMMENTS (24 to date)
Seth writes:
In your reply you stated that education's value added was maybe 20% of the private returns to education. Does this mean that you think fully 80% of the value of time and other resources spent on education are wasted?

I believe the words Caplan used for the 20% was 'skill acquisition', which I take to mean the specific skills acquired through coursework.

I don't believe that translates to 'education value' or implies that 80% of educational resources are wasted, but I could be wrong.

Floccina writes:

My thoughts:

Schooling is not equal to Education

The testing function of schooling often squeezes out education.

It is amazing what useful information typical college graduates do not know.

If schools exist to educate why do they do so much testing. Worse they seem very willing to blab the results of all their testing to other organizations.

Education is free but credentials are rather expensive. You can listen to MIT and Harvard lectures free on-line and you could always go an listen to some classes for free.

The principles of most subjects including physics, chemistry, accounting, statistics etc. are quite simple but people do not learn them well due to the need to make the subjects rigorous.

Why when people discuss schooling and how we need to better educate the population, do they seldom say what it is that people do not know or cannot do that would benefit them so greatly in life but rather make statements like we need more college grads or our students do less well in international comparisons based on some tests. We seldom ask what is the most efficient way to get this knowledge and skills to people. I think because getting the knowledge and skills to people with credentials is a waste.

My grand parents went to 1 year of school each, yet they ran a successful barber shop and they were much more educated than many college grads I know. I know college grads who cannot believe that 100 mpg carburetors do not exist despite my explaining the Carnot limit to them. On the other hand my grand parents could understand such and would call them ignorant (male educato).

Thomas Sewell writes:

At least one reason why more businesses don't do apprenticeship style programs is that it's illegal, as are unpaid internships.

Another legal issue is that you can't effectively contract for someone's labor AFTER you've taught them. You can train an employee and they can then leave for your competitor. Without the costs spent on training the employees, your competitor can pay them more than you can, everything else being equal.

The closest you'll see to apprenticeship is in (foreign) soccer and baseball clubs, where teams get a legal ownership interest in the players they develop. Since that tied-up-contract process is legal in those sports, most players are apprenticed to a team. In sports where because of the rules and/or legalities teams can't bind players like that, colleges play a much larger part as "farm" teams.

There's definitely a paper there for someone who wants to do some sports economics...

David Friedman writes:

"We teach you all the material in half the time. We hold our students to the highest standards, but if you've got what it takes you can make it through and demonstrate to the world that you are one of the elite."

That's pretty much the EMBA (Executive MBA) model at present.

Stuhlmann writes:

I have a couple of observations.

Some companies must see some value in formal education, since they will often subsidize their employees' further education. My company paid my tuition in a masters degree program. Either they thought this would make me more productive, or maybe they also use education for signaling, "Look how many employees we have with masters and doctoral degrees!"

My experience is that employers prefer to use things they can quantify (degrees, credit scores, etc.) when making hiring decisions. Perhaps they are covering their butts in case a mistake is made (or in case someone sues).

Dan Weber writes:

If education is a consumption good, then employers given it to their employees for the same reason they give them cash.


Dickens makes very good points about skill training. I'm not sure how much they apply to a 4-year liberal arts degree, though.

Peter Finch writes:

> If education is a consumption good, then
> employers given it to their employees for the
> same reason they give them cash.

Since education benefits are tax advantaged (at least in small amounts), it's more efficient than paying in cash.

Certifications, like the CFA charter, are all about signaling, and they seem to be pretty popular, despite being expensive in time and money.

Rebecca Burlingame writes:

20% might actually be a pretty good number for what can be provided (on average) to those who would hire us, from our lifetime of learning. As for the other 80% it is absolutely being squandered in the present but it does not have to be. We can put it to use, making a better world in countless ways...on our own... we just can not do that legally for money, in most instances. That should not stop anyone from doing it for free! Others should only agree to pass it on for free in the same manner.

Ed Bosanquet writes:

I am confused by this debate and I'm not really sure what the subject really is. Debating bundled schooling (learning and signaling) or unbundled skill acquisition (learning alone) and certification(signaling alone). All three opportunities exist depending on the needs. Attempting to quantify the importance of one over the other seems impossible but since the two elements are so frequently bundled there is clearly some efficiency.

If a degree was truly about certification (signaling) of skills, there would be more individuals acquiring certificates only. In many instances, I see this market growing with standardized tests to become a lawyer, engineer or to receive admittance to education institutes. If a degree were truly about education we would see more learn at home classes, material and books. I also see this market growing in foreign languages, educational DVDs (I'm thinking of learning specific computer operational skills) and books. However the market I see growing the quickest is the bundled learning and certification process. Where material is taught and then tested to verify skill acquisition. If there was efficiency to be gained by divorcing these elements, there are many opportunities for that market to continue to grow. From the observations around me I think the bundled good will continue to dominate.

Regarding the inefficiency of teaching skills not associated directly with a planed vocation, there is a robust market for simple vocational training in numerous fields. If the additional skills of reading poetry or art appreciation where unnecessary these directed vocational schools would be seeing bursting enrollment.

There are numerous opportunities for separated learning and signaling that have value in our society and equally so there are abundant opportunities to receive them bundled.

The answer must be somewhere in the middle but to argue about 80% signaling, 80% skill acquisition or any percentage in the middle seems pointless and wholly unverifiable.

Steve Sailer writes:

There are diminishing marginal returns to society from increasing the average number of years in schooling. Sending everybody to elementary school was a huge win. High school, however, we still can't get everybody through. According to James Heckman, the high school dropout rate bottomed out around 1969 at 25% and since increased to 30%.

Brian Clendinen writes:

I think the argument needs to be framed around self learning verses mass education. What does a degree give or show that one could not otherwise obtain on their own? At least with business degrees, accountability is about the only real benfit I have seen that is not signaling related. For a majority of the population someone giving you deadlines and grading you drastically improves the will to self learn and study. I personally think post-graduate certifications will slowly take the place of graduate degrees for professional signaling.

Overall I think this argument is to general. I think there is a huge variance in the signaling and amount of wasted expenditures by degree type. With business degrees I think the 80% waste is accurate if you take into consideration the benefits of accountability. M.D. appears to be a lot less because of residence requirements and typically teachers are professionally practicing.

Mo writes:

I'll put myself out here and say I didn't know what a "conditional imperative" was even though I am highly educated with a BS, Masters, and PhD from some good schools. I read a lot too. I probably am one of those people who would work in government, or think takes, etc. that Bill referred to.

Of course, I thought about it and from knowing what "conditional" and "imperative" means I cobbled together a definition. Then I Googled it.

What? Google hardly knows what it is. It's not like a million nice definitions pop up. You can see the times it is used and figure it out, but it's not like this major thing.

So, maybe what Bill meant was that educated people could figure it out. But what he said is that all these folks knew what it was - like it was this extremely common knowledge. I'm just saying I doubt that I am the only one who missed the lecture on "conditional imperatives."

ed writes:
there is no more efficient way to sort the capable from the incapable. If that is true then what we have is the best we can do

This does not necessarily follow.

If one employer is able to select the capable workers, that just leaves fewer capable people for the next employer, without increasing the number of capable in society. So screening might be socially inefficient even if it is the cheapest screening possible.

Tim writes:

@Mo: as in the OP, it's the categorical imperative.

Scott Scheule writes:

I learned what the categorical imperative was in law school.

Dan Carroll writes:

There are significant constraints in place to protect the status quo: laws restricting unpaid internships, inability of companies to reap the benefits of on-the-job training, as well as laws restricting the use of standardized tests in hiring decisions.

The open questions are: With electronic distribution of information, is the low cost DIY model of education more efficient than the current high cost model? Specifically, could certification exams take the place of diplomas from esteemed institutions? I think the answer is different for different levels of education - obviously not for early education, but the answer is not so obvious for higher education.

Peter Finch writes:

Passing the three CFA exams indicates knowledge roughly on par with a masters degree in finance. I've done both, and while there are differences, they aren't huge. I was trying to make a career change, and I thought the additional demonstration was worthwhile.

After my first degrees, a bachelors and masters in EECS, I declined to pursue a PE. I didn't feel I needed additional signaling, and I felt the quality of the signal was poor. The PE wasn't really focused on digital hardware, which was my speciality. Employers didn't seem to care, and the exam material felt dated (this was ten years ago - it's possible this has changed, but I don't think so). In some fields, like civil engineering, the PE is much more important.

How common are post-high-school certifications, compared to degrees? I imagine they are more common, but perhaps I am wrong.

MikeMcK writes:

Testing could - depending on the position - be used to weed out radically unfit applicants. Employees could then enter a probationary minimum wage period where they would be screened for their ability to come in on time, follow instructions, etc. After this period they could begin intense on-the-job training. A retention bonus, say at the end of ten years, could ensure that they stick around long enough for employers to benefit from this training.

I don't think anything I've said is illegal. I've had to pass standardized employment tests. And I'm not sure unpaid internship is the same as an apprentice period. And retention bonuses are commonplace.

The fact that these techniques are not commonly used does present a problem for the "education is mostly signaling" argument.

I know apprenticeship are common in German-speaking countries. So why are they not used here? It must be because American employers prefer a college degree. Looking at Spence's 1973 paper, employers chose their signals continuously based on what meets their needs. Dickens is correct, the question to ask is "why aren't they choosing something else?"

Noah Yetter writes:

Having to find roles for marginally competent people where their mistakes wouldn't hurt the business while they were learning would be difficult.

This is already done. You don't just hire someone, give them a desk, and expect productivity to flow forth instantly. They need time to learn the peculiarities of the firm. They need, in a word, training.

Given that fact, why require education rather than just skipping to interviews? Oh, I dunno, signalling value?

In a world without pervasive higher-ed-as-signalling, you would see a lot more hiring done on the model of The Apprentice: hire a bunch of people for basically no pay, and let them demonstrate who's worth keeping. But why would I actually do that in the world of today? I'm going to waste a lot less effort in hiring and come out ahead in the long run by just throwing away all the resumes with no degree, calling the rest, and interviewing the best.

Indeed, why would a job candidate want to participate in such a scheme, unless they happen to be competent but lack the signal? If that's you, you can just offer that arrangement to an employer. I'll hire on for peanuts, and show you how awesome I am, then you give me what I'm worth or I leave. I know this works because I've done it.

Peter Finch writes:

> In a world without pervasive higher-ed-as-
> signalling, you would see a lot more hiring done
> on the model of The Apprentice: hire a bunch of
> people for basically no pay, and let them
> demonstrate who's worth keeping. But why would I
> actually do that in the world of today?

You might do this in a world where you didn't really trust the quality of the signals universities were providing you. You might strongly favor candidate employees willing to go through this process. You might find the candidate employees would go through it to get the inside track on good jobs. You might even invent a name for these crazy quasi-apprentices, like, say, "summer interns".

$20,000 for a summer long interview is not such a big deal when weighed against the cost of a poor hiring decision.

FC writes:

In Britain, the "Fast Track" model is growing, and the current government supports it. There are 2 year (vs. 3) bachelor's degrees in everything from business to science, and 4 year (vs. 5 or 6) medical degrees.

NPW writes:

I'm disappointed with an educated person making an argument that is basically, 'Nobody has done anything else for a few decades, so it must be the best possible solution'.
Seriously? Nobody was doing anything other than bleeding patients for a fever, thinking the world was flat, and buying unsliced bread for a few decades either. Does longevity of an idea make it the best solution?
Is it possible that the number of lemmings willing to spend money at a business has more to do with that’s businesses success rather than that actual usefulness of that business? The arguments presented here do not convince me. Can we get something better?
Perhaps the current structure exists because it was formally useful. Inertia and anticipated profit could have caused our present higher education to be less useful.
My purely unscientific guess is that this is true, given the results of my absolutely unsubstantiated survey. With the rigor of a NYT reporter, I asked about a dozen or so people in my immediate vicinity if they agreed with my observations. Since I asked leading questions, I got the answers that corresponded to my life experience.
My grandparents said a high school education followed by two years of college made my grandfather educated and well into the middle class. My parents sold me on the idea, an idea that worked for them, that a bachelors degree would be sufficient for basic necessities. My reality is that my B.S. in business is sufficient to get me in a MBA program and not much else. This education inflation seemed to be a common experience of the people I have met.
Why has education gone through such inflation? Has the job market changed such that degrees no longer prepare students for the job market, or do they no longer provide the necessary signaling weight? Let us look at the job market.
What jobs are available where education, not experience, is the deal breaker? I think of doctors, lawyers, and engineers. How has the standard for education changed for these professions in the last three generations? Not enough to account for the change from high school to a masters degree.
I do not agree that the job market requires education inflation. I believe that it is caused by the increase of people with college degrees, and the ripple effects to signaling.

Miles writes:

[Comment removed pending confirmation of email address. Email the to request restoring this comment. A valid email address is required to post comments on EconLog.--Econlib Ed.]

Andrew writes:

I took a hard major in college (the hardest) and not one thing did I use on the job.

The story went "we teach you how to think." Maybe, but maybe I already knew how to think. But even if they did teach me how to think, we are already one step away from direct application of skills taught to the job.

Something like programming might be a little different but I doubt it. We were taught Fortran for our one programming requirement. Again, presumably a how to think lesson.

Comments for this entry have been closed
Return to top