Bryan Caplan  

Human Capital, Signaling, and Ability Bias for X: A Guest Post by Vipul Naik

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Vipul Naik of Open Borders sent me a very insightful email on the non-pecuniary returns to education.  He's kindly given me permission to reprint it.  Vipul speaks:

I've been thinking more about your human capital/signaling/ability bias theories of education. It seems to me that this framework can apply to things other than just the education -> earnings link. Other possibilities are:

  • Education -> Health
  • Education -> Self-reported happiness, life satisfaction etc.
  • Education -> Marital happiness and success
  • Education -> Friend quality
  • Education -> Civic virtue/tolerance/progressive social attitudes

For any Education -> X link:

The human capital theory would say that: (i) People learn and retain stuff from education, and (ii) that stuff helps with X.

Since you've essentially debunked (i), this means that the human capital theory has a strong presumption going against it for Education -> X linkages for all values of X, not just X = earnings. Thus, for most of the linkages, we have a contest between ability bias and signaling. The ability bias would say that this is purely correlation -- people who have better X also tend to get more education.

The signaling theory, in contrast, does not make sense for most values of X. For instance, I'm hard-pressed to think of a signaling theory for the Education -> Health relationship. In fact, the only areas other than earnings where I can see signaling playing a role is in mate selection/marital success and friend quality. I guess you could argue that education indirectly affects all the others through signaling via its effect on earnings, but if your view of, say, health, is Hansonian, then you're probably skeptical of earnings being causally implicated in health outcomes.

My guess is that education -> X linkages for most values of X are purely correlational (ability bias) with a very tiny amount of causation through the human capital channel. If so, your signaling theory for earnings is the exception rather than the rule in terms of education -> X linkage explanations.

P.S. I've already made this point for the marriage premium, and shown that the effect of education on job satisfaction appears to be more than 100% due to ability bias (i.e. holding income constant, the well-educated have lower job satisfaction).  Note also that Oreopoulos and Salvanes' "Priceless" in the 2011 Journal of Economics Perspectives tries to do what Vipul suggests, though not very successfully in my view.

COMMENTS (7 to date)
Steven Flaeck writes:

If education is primarily signaling for both ability and conscientiousness, then the signaling model would imply correlations between these simply because conscientiousness would play a large role in health, happiness, friend quality, and social attitudes insofar as impatience implies degrading these values. People with high levels of conscientiousness make better friends, so too people with decent levels of conformity (or group orientation). Selfish people make bad friends and partners, after all. They may make for deeper cretins as well; a conscientious person may well have more patience with other values, able to suppress their frustrations with, f.ex., cultural ticks long enough to no longer be in their presence or for them to become considered "normal behavior" for some value of normal.

David writes:

I was recently at a hospital in the UK with relative who is a professor at a different hospital. I believe th we got faster service (only 2 hours) than if he had not been a professor.

Nathan Smith writes:

Wait a minute. Suppose my theory of the Education -> Health link is that people who don't get sick much get better grades, just because illnesses disrupt study? Is that ability bias? Does it become a signalling story if employers prefer educated people because they're healthier, and people get education bscause employers like it?

Anthony writes:

Check out "Mother's Education and the Intergenerational Transmission of Human Capital: Evidence from College Openings." Using an IV strategy having to do with college availability, they find causal effects of going to college on smoking during pregnancy and using prenatal care, as well as being married, leading to healthier babies.

Mikk Salu writes:

In recent years Scottish intelligence study has produced tens and tens of different papers linking intelligence and different health outcomes. Basically all of these papers have turned upside down conventional view of causality - bad health causes low intelligence. Papers from Scotland are saying differently, intelligence comes first and bad/good health comes later. For instance about dementia and intelligence
Education has almost no place in this linkage.Yes, higher education means better health, but causality comes from intelligence (genes, not from education.

David Friedman writes:

"I'm hard-pressed to think of a signaling theory for the Education -> Health relationship"

If you believe that health care has a sizable effect on health, you could argue that medical professionals take educated patients more seriously, and treat them better, than uneducated patients. The ditch digger complains about stomach pains and the doctor tells him to take antacid. The college professor complains and is sent into the hospital for extensive testing.

I'm not sure it is true, but it's at least a possible link.

MingoV writes:
I'm hard-pressed to think of a signaling theory for the Education -> Health relationship.
If education consists of sending a signal AND knowing how to read other signals, then better health would be achieved by recognizing signals send by health care workers. Also David Friedman's postulate probably is true.
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