Bryan Caplan  

Another Education Bet?

Higher Education Bubble?: Gett... Bok's Economics of Education...
Mark Little proposes an interesting bet in the comments:


I will not take your bet but will offer you the opposite one--that the proportion will be not less that 10% HIGHER.

I believe that your signalling theory is correct, but woefully incomplete. The demand for higher education is driven by a combination of motives, including at least:

1. Education (human capital model)
2. Quality signalling (your model)
3. Credentialing (union card model)
4. Social signalling (status seeking model)
5. Consumption 1 (learning for its own sake model)
6. Consumption 2 (4-year party model).

Motive 1 has declined in relative (not absolute) importance as the proportion of youth attending college has grown. (See Charles Murray.)

Motive 2 is very important but easy to exaggerate.

Motive 3 is even more important than 2. A 4-year degree has become the While Collar Union Card: you can't get a "good" job without it, regardless of how much you know or how good you are, and regardless of how effectively you otherwise signal...

Motive 4 is also very important. As a 4-year degree has become the prerequisite for a middle class career, it has also become the marker for middle class social status.

Motives 5 and 6 are less important, but not to be overlooked.

All of these sources of demand tend to grow, along with technology growth, income growth, and the usual downward diffusion of social status markers...

So, since I've added 4 sources of demand growth to your 2, I'll bet on the high side.

Care to take that bet?

Motive 3 is important for government (and possibly private non-profit) jobs; otherwise I don't buy it.  But even so, a 10% gain is roughly what I expect, so I don't want to take this bet.  I'll bet against you if you say that percent of 18-24-year-olds enrolled in 4-year institutions will rise by 20%.

Comments and Sharing

COMMENTS (19 to date)
Mr. Econotarian writes:

As the father of a little girl, I have to admit that I will likely utilize the signaling model of a college education when I review her post-college boyfriends!

Seth writes:

Based on just one small sample size anecdote (my own experience): I wouldn't underestimate #3 for the private sector.

Hire someone without credentials and they fail, you're done. Hire someone with credentials and they fail, there's a shoulder shrug with a "Who knew?" and life goes on.

Until that changes, I don't see #3 changing.

I also wouldn't underestimate #6 either. State schools especially seem to be spending taxpayer money building out resorts and spas to attract students, rather than relying on good education and a promise of a high-paying career.

Alex J. writes:

In computer programming, you don't need a degree, but you do need to be good enough to counter-signal. One could easily take all available high school programming classes, then teach oneself for 4 years and be in a position to get a good job.

mdb writes:

Model 3 is important in many government regulated/licensed jobs as well, and is becoming more and more important unfortunately.

MG writes:

Interesting, but all I have seen discussed here are reasonable guesses of where demand fir Higher Ed ought to go, and then guesses on where this new demand will equal supply to produce this stat called % enrolled. We should also ask or bet (more explicitly?)on changes on changes in the relative pricing of Higher Ed. I assume that Brian's bet of relative enrollment stability probably suggests that the relative pricing of Higher Ed stays about the same. Yet he could also win his enrollment bet if the relative pricing of Higher Ed came down enough to hold enrollment constant even as real decreases in the "attractiveness" if Higher Ed is experienced. Is this right?

ColoComment writes:

If you don't think Model 3 is a high priority factor in job-seeking, in either the private or public environment, you haven't looked for a white collar job lately. Given the reality of the current market with its vast surplus of applicants, a lack of credentials, esp. a college degree, will get your resume/application tossed at the first cut.

The hiring manager has to start weeding somewhere, and a degree/no degree threshhold is an easy answer.

A personal recommendation from an inside employee might trump a lack of degree, but even then, I'd not count on it as a 100% offset.

Arnez McDaniel writes:

I belive that the demand for higher education is as Bryan states, dependant on certain factors. Income and education ,however, are the almost the sole variables. So much so that even though many would agree with me I belive they are still overlooked. If a person is not educated to the effect that they do not realize that they need higher education to thrive in today'society they most likely will not pursue one. Also even though students are presumed to recieve equal consideration according to their academic creditials, I feel that the students who able to produce more out-of-the-pocket money rather than finacial aid are more geared toward acceptance.

Norman writes:

Motive 3 can account for certain behaviors that motive 2 cannot. A key example is college degree requirements for internal promotions: since the firm already has work history with the employee, the degree provides little additional quality information.

PrometheeFeu writes:

I'm not sure I understand what you mean by "credentialing". It sounds like licensing in which case it is VERY important in some limited areas: law, medicine, teaching, accounting etc... If it's not licensing, I don't understand what it is. Is it a sort of informal license? If that is the case, it doesn't seem like a factor at all. After all, the question is: "Why do college graduates get hired?" Such an informal license simply answers: "Because you need a college degree to get hired." Not very useful.

I think we need to add another factor: network effects. Because people who go to college are more likely to have good jobs, knowing people who went to college is a great way to hear about job opportunities and make friends who are likely to have a buck to spare when you need a hand. Of course, going to a college (especially living on campus) will pretty much ensure you form close ties with people who will have gone to college. I've been out of college for only a few years and already, I have given and received job recommendations, (some of which resulted in hiring) given and received financial assistance, pooled resources to afford renting a nice house, saved significant expenses on travel by being hosted and much more. I think one should not underestimate the value of having a set of college-educated friends.

Keith writes:

Anecdotal, of course, but #3 is certainly very strong. As a motive for pursuing education it may not be the highest... but once a graduate is in the job field, it is by far the most relevant factor.

Entire industries view a degree as a litmus test for hiring. Experience and demonstrable skills count for little in comparison. The main value of a $50,000 diploma is to get you past the unthinking filter of an HR department.

PrometheeFeu writes:

@ColoComment, Norman:

I just don't think Motive 3 is an explanatory model as much as a description of the situation: "Sometimes you don't get promoted without a college degree." You can't make any testable predictions from that. When will that college degree be required and why? That's the interesting question. It is worth noting that a promotion usually means doing a different sort of job. For instance, being a worker-bee is different than being a manager. Overseeing worker-bees is different than overseeing managers, etc... If that is the case, being a good worker-bee does not mean you will make a good manager. The Peter Principle applies. You must rely on other signals to figure out who will make a better manager. If the organization is small enough, then you can trust the higher-ups to personally assemble the facts and make a good decision and so smaller organizations (I would imagine) probably do not require a degree for promotion. On the other hand, if you are in a large organization, there is a principal-agent problem. The idea that employees (including low and mid-level management) might collude to get promotions is not crazy if you can't monitor them effectively. A degree is an easily observable signal. So you might make a degree a requirement in order to cut through some of the noise. Then, all the usual signaling and education stories apply.

So how is that for a prediction:
For organizations that hire lots of people who do not have degrees, as its size increases, it will be more likely to institute a policy to require degrees for promotion.

Foobarista writes:

Unless HR departments suddenly disappear, college degrees will stay important for a good while, even in tech. It is possible to do well in tech without a degree, but you have to be a high performer and have a fair amount of luck early in your career.

If you're more ordinary, you'll need a degree, and even if you're a rockstar, there are still plenty of other rockstars out there _with_ degrees that HR departments will put at the top of the stack, so you'll be much more reliant on personal networking to find work.

steve writes:

As an engineer I find that your comment about 3.) credentialing is only partially correct for engineering companies in my experience.

Basically, I see a number of different cases.

1.) Experience
Basically, if you can get your foot in the door, the only thing that is important is your work over the past few years. In other words, if you have had the job in the past, credentials don't matter. You see this a lot with old timers. I guess there just were no computer programming degrees in the old days so they would hire people for all sorts of reasons that they thought would make them good programmers.

2.) First Job
Credentials matter here when getting that first job. But, there are workarounds. The work arounds are start your own company (i.e. Steve Jobs, Bill Gates), have a strong "in" with someone who owns a company (It doesn't seem to help to know a manager at a publicly traded company.), or finally do some free work on some open source design or a snazy app and hope that someone in a position to hire recognizes your value. It's a bit of a long shot, but if your in highschool or college doesn't keep you busy enough it is worth a shot. (In my mind, you might as well start your own company rather than go this route. Why not at least take a chance on being paid?)

3.) Ancillary Skills
Sometimes you see people hired into engineering companies because of artistic skills (especially gaming companies) or language skills (somebodys got to talk to the factory in China.) that wind up finding themselves doing engineering work as well (There is never enough man power during crunch time, and if your willing they will be happy to start you off with the grunt work). This can get them that next job as an engineer if their references support their work as good quality.

ziel writes:

#3 is very important in the private sector (at least with larger firms) to avoid disparate impact suits - as are all credentials. If you start hiring off the street based on some non-credentials based criteria, then you've got some serious 'splainin to do as to why your workforce doesn't "look like America".

Mike writes:


#3, as you've seen from the comments (for large organizations ziel hits an important point), is an important aspect of "education."

But MG is asking the important question. With the changes in technology, and the obviously ability to reduce costs, where will the students be in 10 years?

I think signalling and credentialing will be just as important 10 years from now. I also beleive that someone will find away to provide quality signals and credentials at much lower cost.

Bryan Willman writes:

#3 is a huge big deal in large tech companies, and as time goes on it gets worse.

Legal issues loom large, but I think they're secondary to simple issues of scale.

As in, when you see 100,000 resumes a week, for an org of only 50,000 people, with only about 1,000 job openings in any given month, you MUST have some socially acceptable filtering mechanism. You cannot interview everybody on Earth who wants to work for (google, facebook, apple, microsoft, amazon, intel, ....) You just can't.

The internet makes this worse, because now 10 year olds can fill in some web form to apply.

A college degree is a socially and legally acceptable filter, which can be checked pretty efficiently. What's more, having a technical degree from a good college program is a good (though certainly not perfect) indicator that the applicant is worth the time and expense of an interview.

The goal is NOT to find and interview every possible candidate, nor even to find the best possible candidate. The goal is to find a good to great candidate at a reasonable cost while not running afoul of legal or social rules.

If it's not college degrees, it will be some other kind of "credential", numbers alone require it.

Komori writes:

@Bryan Willman

Some fields do have alternate credentials to a degree already. For instance, in IT. If you've got a CCIE then no-one is going to care whether or not you've got a college diploma.

Mind you, a CCIE is a serious time, effort, and money commitment. However, lower end certifications, like the CCNA, are pretty much the foot-in-the-door, and don't take very much to get.

Bryan Willman writes:

Sure. But it's still a credential, albeit a cheaper one.

I think, but cannot prove, that the fast way to the "big money" jobs in tech is with a bachelor's degree in a relevent tech field.

Glen S. McGhee, FHEAP writes:

Research in Social Stratification and Mobility has a special volume on this: New Directions in Educational Credentialism, Volume 29, Issue 1, January 2011, Pages 31-55

See especially Hal Hansen's
Rethinking certification theory and the educational development of the United States and Germany

This essay places work certification at the center of all modern educational regimes. I sketch the growth of the education, training, and certification systems of the United States and Germany in new ways, highlighting the role of their highly divergent certification regimes in shaping them. Whereas Germany's education and training system, anchored in the economy through employers’ associations and unions, accords well with human capital models, American practice, governed primarily by academic interests divorced from the economy, fits much better with credentialist theory. I consider how the absence of meaningful work certification at the secondary level in the US negatively affects educational justice and has encouraged the creation of a costly, inegalitarian system of higher education. Finally, I conclude with an assessment of human capital, signaling, control, and credentialist theories of certification, one that finds them all to some degree wanting.

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