Bryan Caplan  

A Question of Educational Discrimination: Some Answers

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Last week I posted the following final exam question:
Some sociologists have argued that discrimination on the basis of educational credentials should be illegal.  What do the human capital and signaling models of education predict about the effect of such a law?
Lots of thoughtful responses in the commentsAnthony and Silas Barta are my favorites.  My answer:

1. In a pure human capital model, employers have perfect information about workers' productivity, so education only pays because it makes workers more skilled.  Assuming the law correctly identifies "discrimination on the basis of educational credentials," there would be no effect on behavior.  The law simply bans something that no employer does, so no student has an incentive to revise his educational plans.

In the real world, however, discrimination laws usually take different average group outcomes as prima facie evidence of discrimination.  Employers who disproportionately hired and promoted the better-educated would expose themselves to legal action.  To reduce their legal risks, employers would, all else equal, prefer uncredentialed workers.  Firms would scramble to find qualified workers with poor credentials - and often settle for subpar "token" drop-outs to show their good faith.  Without draconian enforcement, however, employers would continue to prefer educated workers while loudly denying it.  Still, the net effect is that students would reduce - or deliberately conceal - their educational investments.  In a pure human capital model, this is a clear social loss.

2. In a pure signaling model, in contrast, any ban on educational discrimination has a big effect.  Assuming the law correctly identifies "discrimination on the basis of educational credentials," imperfect enforcement is the only remaining reason to go to school.  Employers will try to find legal signals of intelligence, conscientiousness, and conformity, and workers will strive to provide these alternate signals.

But in the real world, to repeat, discrimination laws usually take different average group outcomes as prima facie evidence of discrimination.  New signals that closely mimicked the result of educational signaling would themselves be legally suspect.  So once again, employers would go out of their way to hire less-educated workers to shield themselves from prosecution - while covertly preferring educated workers.

In the pure signaling story, the net social benefit of banning educational discrimination is unclear.  Since education is currently heavily subsidized, it is entirely possible that the alternate signals that emerge will rank workers at a lower social cost than the status quo.  Even if the ranking of workers is absolutely worse, we have to weigh inferior job match against the massive social savings of slashing wasteful "investment" in education.

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COMMENTS (1 to date)
Brian writes:


Your take on considering employers' responses to the legal ramifications of discrimination is interesting. I hadn't thought too much about that aspect. But I don't think you got it right. You suggest that employers would purposely seek noncredentialed workers for legal protection. But hiring workers specifically because they don't have a degree would violate the discrimination law (i.e., no discrimination on the basis of academic credentials). Employers could be sued for hiring noncredentialed employees unless they had a clear justification for hiring them beyond the (lack of) credential.

The only protection against prosecution would be strict hiring rules that

1) forbid the disclosure of educational background, whether directly or indirectly, and

2) base hiring on specific skills clearly essential for the job, with the understanding that such skills would be demanded explicitly in job announcements and could be tested in the interview process.

It's worth noting that educational discrimination is fundamentally different than racial or gender discrimination. In the latter cases, a.) it's impossible to hide one's membership in a particular group. There's also b.) the presumption that particular races and genders carry no inherent advantage or disadvantage. Group outcomes can therefore serve as evidence. In the case of educational discrimination, neither a.) nor b.) is necessarily true, so there would be no basis for using group outcomes as evidence of discrimination.

This hypothetical law would lead to strictly skill-based hiring. Prospective workers would ultimately 1) have to claim they possess skills and be reasonably conversant about them, 2) have to have people who can vouch for their skills, and 3) be able to pass whatever skill-based assessments are used.

With these conditions in mind, it's not hard to see, as I argued earlier, that both models predict no change in the value of college. Whether college actually imparts skills (human capital model) or selects for those who are more likely to be good skill learners (signaling model), college attendees will be more likely to perform well on the three skill-based criteria outlined above. In the case of signaling, especially, it's important to recognize that signaling is much more effective when both the job seekers and employers BELIEVE that college is about human capital. So at least in the U.S., even if schooling is mostly about signaling, the effect of the non-discrimination has more to do with the PERCEPTION of schooling, which is almost exclusively human capital based. The dynamic might very well be different in cultures where school is viewed as primarily a signaling phenomenon.

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