Bryan Caplan  

The Picoeconomics of Education

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Economists who study education usually look at the effect of individuals' education on individual income - the standard "microeconomic" approach.  But economists who study education also look at the effect of countries' education on country income - the "macroeconomic" approach.  This piece by Fabian Lange and Robert Topel carefully distinguishes between the "Micro-Mincerian" return to education - how much a one-year increase in individual education increases the income of the person who gets it - and the "Macro-Mincerian" return to education - how much a one-year increase in average national education increases the income of the country that gets it.

All this is well and good.  But there's an even deeper level of education to examine: What students actually study, learn and retain.  I think of this as the "picoeconomic approach"* because it focuses on details too small for the "microeconomic approach" to see.  The microeconomic approach tells us how much the market rewards education.  But in the end, it doesn't tell us why.  To discover why education matters, we must descend to the picoeconomic level.

Key example: the main reason I'm think signaling is big deal has nothing to do with either Micro-Mincerian or Macro-Mincerian estimates of the return to education.  The main reason I think signaling is a big deal is that (a) students study a ton of material that almost no job uses; (b) the Transfer of Learning literature shows that learning is highly specific - you don't build general purpose mental muscles by learning Latin; (c) students quickly - and happily - forget most of what they learn, anyway.  And yet employers amply reward education!  The signaling model instantly looks like the best way to explain all the key facts.

You'd never extract any of these lessons from wage regressions.  To reach them, you've got to actually peer inside the individual mind - or introspect on your own experience.  Yet economists who study education habitually neglect not just these particular insights, but the very existence of a picoeconomic level.  And that is why they fail to see education for what it is.

* I know that the term "picoeconomics" is already used to describe the study of self-control problems, motivation, and so on.  But why not think of self-control problems as one picoeconomic topic, and mine as another?  We can treat picoeconomics as a blanket term that covers everything too small for microeconomists to notice.


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COMMENTS (12 to date)
quadrupole writes:

I'm not entirely sure that's true in all fields.

My background is in physics, and while I pretty much *never* use physics itself in my work, I use *daily* the system modeling techniques it etched in my brain. And I've noticed that most other physics folks I meet professionally have the same sort of odd (and extraordinarily useful) brain etching. To the point where I can almost tell them on sight when I first meet them.

I'd completely buy that latin doesn't transfer to anything useful... but in my experience physics does.

So am I deluding myself?

ed writes:

Why not "nanoeconomics?"

James writes:

What quadrupole said. The results of studying Latin are just that, the results of studying Latin. I would guess that studying math, especially the stuff that can't be done by a mechanical procedure (writing proofs, finding antiderivatives, solving DEs, etc) builds plenty of "mental muscle." For whatever introspection is worth, I believe that my own study of Latin built zero mental muscle but my study of math really did have the claimed transfer benefits.

Having said that, I think it more likely that mathematics, rather than Latin, is the special case.

Tom West writes:

Bryan, I think that's exactly the problem - for me, and I suspect many, if not most, of the readers here, the direct knowledge gained from their education is of marginal use. Instead, they constantly use the over-all skills that were derived from their university experience.

Most of my jobs have involved things I've never seen before. I deduce system behaviour from "first principles" where I see co-workers with a more rigid, vocationally-oriented educational background freeze up.

I attribute this to the dozens of systems that I worked with in university allowing/forcing me to generalize (i.e. transfer of learning).

Now, one could claim that I would have picked up this skill in the absence of that education, but

(1) Very few jobs will give you that wide sweep of systems, since you're of marginal usefulness if you're constantly switching systems, and

(2) You're surrounded by like-minded individuals attempting to do the same instead of being the sole individual struggling to come up to speed.

So, no, I suspect the majority of university-educated readers here to feel, upon introspection, that they would have made a much smaller intellectual contribution to themselves and society in the absence of the education they received.

ThomasL writes:

Latin for Latin's sake may be limited, but isn't that like learning math for math's sake or history for history's sake? Very few things, if any, when looked at so narrowly as to say it must in itself justify itself would pass the test.

That view circumscribes knowledge and topics too narrowly and erects artificial walls between them. Math isn't an end, but it is a great means to many possible ends. Learn some statistics and number theory, and the world looks mighty different than it did before, no matter what job you are in.

History is experience presented to you all wrapped up and tied with a ribbon. Read some Plutarch and see if it felt like a waste of time. It doesn't apply to nothing -- it applies to everything.

You learn Latin to read Cicero, Livy, St. Augustine, etc. There are always translations, but is it really so preposterous to think they had something to say that might be worth reading in their own words?

Richard writes:
Most of my jobs have involved things I've never seen before. I deduce system behaviour from "first principles" where I see co-workers with a more rigid, vocationally-oriented educational background freeze up.

I attribute this to the dozens of systems that I worked with in university allowing/forcing me to generalize (i.e. transfer of learning).


Did you need go to primary and secondary school for five days a week, seven hours a day for 12 years plus 4 years of college to learn those skills? Seems to me that some education is useful in teaching you how to think, but our society does so much schooling that we're way past the point of diminishing returns.
Tom West writes:

I'd say that high school gave me the breadth of knowledge to be able to (somewhat) meaningfully participate in discussions (and as a voter, policy) on the spectrum of arts and sciences.

University, while teaching me a wide variety of skills, probably provided most of the "experience" that was needed to "teach me how to think".

More to the point, I would expect (possibly incorrectly) that many readers here would feel similarly, making Bryan's survey of introspective insights by this blog's readers somewhat problematic.

Richard writes:

I think that many readers' first reaction would be similar to yours, but if they're right it's a sad commentary on our pre college education system.

Really, there isn't that much stuff that you need to know to become a knowledgeable member of society that you need 12 years of training, 35 hours a week. Just total up the hours and compare how long it takes to learn to become a doctor, engineer, etc.

If you truly learned how to think in college, I think that for people with above average IQs it could be fit into primary and secondary school, without losing much of that other stuff. Without tracking, however, a smart child isn't going to have the opportunity.

I think I've read that the evidence suggests that children who have never been to school have lower IQs than those who have been. But where diminishing returns kick in we can only speculate.

Not to disagree. Here's a few considerations.

By analogy:...
Sometimes one hears people assert that people only use 10% of their brains. While the assertion may apply to people who make this assertion, it does not make evolutionary sense in general. I suggest that, like a mechanic with a shop full of tools, people only use some small fraction of their total inventory of intellect or tools at any one time.

Further:...
A lot of the stuff we study serves only as a make-work program for public sector employees.

Further:...
Businesses which require high school diplomas and college degrees contract-out the function of racial discrimination, which authorities would punish unless the discrimination occurs over the course of 16 years of K-BA schooling. "BA in X required" means "Whites and Asians preferred".

Ben writes:
(a) students study a ton of material that almost no job uses;

Can you clarify what this material is? You've mentioned Latin, which as I can tell is rarely taught, and when it is, it's usually to those likely to pursue theology, classics or philosophy, for whom it would be fairly useful.

Is it mathematics that's not used professionally? Physical science? Social science? Civics? History? Foreign languages? English literature and writing? What curricula are you objecting to? Or is it just specific lessons within a particular field?

Brian writes:

Bryan,

You are missing some crucial points. With regard to the uselessness of Latin, you couldn't be more mistaken. Rather than building "mental muscles," I found Latin crucial for understanding the structure of language in general. All the things I missed by having English as my native tongue became clear when I took Latin. Learning Latin also greatly expanded my knowledge of English vocabulary and my ability to guess at unfamiliar words. All valuable, no?

I can't help but think that your love for your pet theory (education = signaling) makes it hard for you to see the flaws in your reasoning. For example, much of what we learn in school is not about what we need for a particular job, but what we need for EVERY job. As pointed out ably by Tom West, we are able to build useful mental models by being exposed to diverse aspects of knowledge. The details are unimportant ultimately (we can forget them without harm), but the models that remain are crucial to success.

Is signaling part of the value of education. Sure. We use it that way. But education carries a significant added value beyond that. If you doubt that, consider that one could argue that each year of education offers no real value, and thus conclude that NO education is just as good as full education. But careful studies, as well as intuition, show that to be false.

Walter Sobchak writes:

Following up to what ed said above, SI uses designated prefixes to indicate quantity:

micro μ u U 1 × 10-6
nano n n N 1 × 10-9
pico p p P 1 × 10-12
femto f f F 1 × 10-15

http://aurora.regenstrief.org/~ucum/ucum.html

Clearly the step under micro is nano, why did you skip to pico, which probably refers to the relations between individual organs in a human body?

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