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Frequently Asked Questions
Today I'm celebrating Labor Day by continuing my exchange with Bill Dickens on the signaling model of education. (Previous rounds here, here, and here). What's the Labor Day connection? Simple: If I'm right, we'd be collectively better off if we spent fewer years in school and more years in the labor force.
One caveat: While I think that signaling is the main reason why our education system is so inefficient, it's hardly the only reason. In my view, our education system is a Frankenstein's monster - a grab bag of inefficiencies hideously stitched together. For example, K-12 schools' tolerance for disruptive behavior seems highly inefficient, but neither the human capital nor the signaling model explains this dysfunction. In my reply, I try to stay focused on signaling, though I do occasionally reply to Bill's broader comments.
To keep the debate from getting stale, this is my last installment. If Bill wants to reply, I'm happy to give him the last word.Now onto the celebration. My reply, point-by-point:
Correct. While I think that intelligence is fairly easy to observe (even in a regime where IQ tests are only semi-legal), conscientiousness and conformity are often hard to spot - especially when people have a strong incentive to fake them. Even worse, low educational attainment relative to IQ is a strong signal of low conscientiousness and conformity. So when employers interview a smart person with little education, they infer that the person is well below-average in other productive traits.
Right. Some signaling is socially productive because it improves the match between workers and jobs. But it's privately optimal for students to far exceed the social optimum.
My preferred policy is simply to end government subsidies for education. It might be even more efficient to go further and impose a Pigovian tax on education. But since education is a mix of human capital creation and signaling, and government has already made a mess of things, I think the all-things-considered best approach is separation of school and state. But someone could accept my views on signaling without going that far (or by going even further!).
I agree that education has some positive externalities that partially balance out the negative externalities of signaling. But I think that these positive externalities are overrated, and in any case stem from a tiny subset of coursework. Positive political externalities of economic education? I'll buy that. Positive political externalities of history? Probably not - only a handful of people can competently reason from historical examples to current issues. Political externalities of English or sociology? If anything, they're negative.
Even on your fall-back position, don't government subsidies for education make a bad situation worse?
Suppose you told me that only 20% of oil production was socially efficient, because the other 80% had large negative externalities - pollution, global warming, whatever. Would "How is that possible?" be a reasonable reply? I don't think so. In both cases, the point is that individuals and firms are advancing their own interests by ignoring the large negative side effects of their behavior.
In the case of the education system: Students advance their interests by looking good compared to other people in the job market, employers advance their interests by hiring smart, determined candidates, and schools advance their interests by making their students look good to employers. If this leads to a world where schools design meaningless hoops, students jump through these hoops, and employers financially reward the winners, why should students, employers, or schools worry if it's globally efficient?
Before you enlightened me about the manifest inefficiencies of mass unemployment, I might have said the same thing! Unless you've had a major change of heart, you too admit that individual self-interest plus human psychology creates some awfully inefficient outcomes.
At first glance, you've pointed out an important distinction between mass unemployment and signaling: mass unemployment doesn't last decades. I'd reply, though, that the key inefficiency - nominal wage rigidity - has persisted for not just decades, but centuries.
In any case, then kind of innovation you get depends on incentives. If pollution is free, there's not much reason to think that innovation will solve the problem over any time horizon. The same goes for signaling. Students, firms, and schools get better at "playing the game," not reaching a global optimum.
It's not an ideologically comfortable position for me. But first-hand observation of the education industry, plus the psychological evidence against the empirical importance of "learning how to learn," "training the mind," etc., leave me little choice. On a deeper level, admittedly, I am taking a characteristically Caplanian position: Government is making a genuine market failure worse because voters systematically overestimate the social benefits of education.
I agree that government subsidies are an important part of the problem. I'd like to be able to say that government is the whole problem. But that just seems false. Long before government subsidized higher education significantly, schools designed meaningless hoops, students jumped through them, and employers rewarded them for it.
Agreed. Government makes a bad situation worse, but it's not the root of the whole evil.
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.
This sounds very reasonable. But reread your last sentence carefully. If the advantage is only "slight," then a slight adverse selection problem is probably all it takes to cancel out the benefit. So there's not much reason to be optimistic about stepwise progress to a low-signaling world.
"Experimental" covers a wide range of experiments. Bard College is experimental in some sense, but it still makes students jump through a bunch of meaningless hoops. If you can handle four years of that, you'll probably make a good worker. But experimental schools where you simply cut out hoops so their students can graduate sooner? Employers might find their graduates "interesting," but they're more likely to dismiss them as slackers who took the easy way out.
Actually, most colleges already offer this. You're free to take heavy courseloads in order to finish your education more quickly. It's a strong signal, too. Unfortunately, you have to be super smart and determined to send it.
You're conflating two very different kinds of forgiveness. Forgiveness toward students who take risks with big upsides and small downsides often leads to valuable results. But forgiveness toward students who are disruptive or lazy doesn't. (This point is largely orthogonal to signaling, but since you raised it and it's interesting, I wanted to respond).
Why? Schools let students send a wide range of signals because students have a wide range of signals to send. Many students have the brains and determination to finish an English degree, but not a math degree. Schools serve both, and employers reward them accordingly.
These countries have lots of other problems, too, Bill - poverty, pre-existing culture, etc. Why assume that the school system is the weak link?
When firms lobby for detailed policies that affect their specific industries, I'll accept the presumption that their means are well-tailored to their ends. When firms lobby for broad social policy, though, there's no such presumption. Policies that are good for business in general are a public good for any particular business. So I figure the "business community" was largely engaged in public relations - trying to look good by voicing support for whatever people at the time saw as "right-thinking" school reform.
I never said that all educational innovation generates adverse selection. You get adverse selection when you try to make education easier - when you reduce the number and difficulty of meaningless hoops students have to jump through. Co-ed dorms and high-tech classrooms don't attract losers. Cutting math and foreign language requirements do. And as I said earlier, it only takes a slight adverse selection problem to cancel the benefits of a slightly more efficient curriculum.
By the way, if you believe that offering to work for free during a trial period is such a great way to overcome signaling, why don't you think it's a great way to overcome labor market rigidities?
Yes, I've been interested in interviewing people about their transcripts for a few years. Know of a massive grant I could get with minimal effort? :-)
For my education, I wouldn't go higher than 30%. Your "100%" figure puzzles me greatly. You told me that you used to believe in the signaling model. If your first-hand experience didn't deceive you, what did?
I'm standing my ground. I'm happy to admit that I've got a 10 percentage-point standard error around my "80% signaling" estimate. But a priori arguments about how easily market forces would undermine signaling don't sway me. I've spent too many years learning - and teaching - material that's all-but-useless in the real world.