Bryan Caplan  

The Shared Illusion of Education's Mainstream Defenders and Contrarian Detractors

Helen Lovejoy Political Econom... Incentives in Foreign Policy...
Here's an excerpt from the latest draft of The Case Against Education.

The link between practical skill and worldly success is subtler than either mainstream defenders or contrarian detractors of modern education imagine.  The skillful do a good job.  The successful have a good job.  Despite its weak effect on skill, education remains the modern economy's surest stairway to prosperity.  The more steps you climb, the better the market treats you.  If you personally know a lot wealthy dropouts and indigent college grads, you personally know a lot of exceptional people.

Challenge the data all you like.  Correct for brains, motivation, family background, choice of major, and beyond.  The education premium will shrink before your eyes.  Yet the shrinking stops long before the education premium disappears.  Vocational majors are especially lucrative, but even Fine Arts and Archaeology degrees boost your income by 30% or so.  While you count the cash, don't forget the equally solid effects of education on employment, health insurance, pensions, and beyond.

Why would shrewd, money-grubbing employers pay such exorbitant rates for archaeologists?  Education's contrarian detractors typically blame the government, but their stories fall flat.  Government sinecures?  The private sector pays more for education than the public sector.  Regulation?  The education premium in licensed and unlicensed jobs is roughly the same.  Lawsuits?  Legal doctrine notwithstanding, the IQ "test tax" is only a pittance. 

Contrarian detractors should stop avoiding the obvious explanation: signaling.  Going to school to certify your skill can be as lucrative as going to school to enhance your skill.  If archaeology B.A.s are better workers than high school grads, an employer needn't waste his time wondering, "What useful skills do archaeology programs really teach?"  Instead, he'll skip the bottom line: "When I pay 30% extra for an archaeologist, I get my money's worth.  End of story." 

Education's contrarian detractors and mainstream defenders have one illusion in common: Both think they can kill two birds with one stone.   The detractors find little effect of education on job skills, so they ignore the evidence about the strong effect of education on worldly success.  The defenders find a large effect of education on worldly success, so they ignore the evidence about the weak effect of education on job skills.  Both sides make strong cases as long as they stick to the evidence they know.  Both sides falter, however, when they use one body of evidence to close two separate cases.

The wise approach is to take all the evidence seriously.  To understand education, we have to look at skill and success, at learning and earning.  Irrelevant education really is financially rewarding.  Human capital purism can only respond with denial and dismay.  We should be thankful, then, that the signaling model is ready, willing, and able to pick up the slack. 

COMMENTS (9 to date)
Luke G. writes:

Very much looking forward to the book. When is it due for release?

RC writes:

The smartest educator I know suggested to me that much of what is really human capital gets mistaken for signaling. Take an Ivy League student named Joe, and assume his IQ, vocational skill, and vocational knowledge are the same as Fred, who went to a state school. The higher income going to Joe is based on signalling that shows Joe is capable of getting through the admissions filter of the Ivy League school, right? Not so fast.

Joe has undergone a transformation of identity that Fred, on average, will not have undergone (or, at least, to lesser extent). Joe was surrounded by faculty and students who reframed his career expectations. He is now Ivy League Joe with Ivy League expectations. This is a real change in his human capital, not mere signaling.

This reframing of expectations and capability is a problem for the online education crowd, because it requires a change in group affiliation in a way that would be difficult virtually.

MikeP writes:

My recollection of previously cited results is that if Fred got accepted to an Ivy League school then went to a state school -- as he would have in RC's hypothetical -- his income results are no different from Joe's.

Is that not right?

MikeP writes:

Instead, he'll skip to the bottom line:

Are you giving out galley bounties yet?

Dan Hill writes:

There seems to be a sufficient body of evidence to conclude that at least a large proportion of our higher education investment is directed towards signaling rather than (human) capital formation.

Let's assume for the sake of argument the split is 50-50. Think about the cost of this system of signaling, not only in terms of direct societal investment in universities, but the opportunity costs of all those smart people (teachers and students) wasting their time.

There has to be a more efficient way to achieve the same signaling result and focusing our education investment on actual human capital development. Current online education initiatives are only a first small step towards discovering what that is, but I'm confident it will come. There's just too much economic potential being wasted for it not to happen.

(Dan Hill): "There has to be a more efficient way to achieve the same signaling result and focusing our education investment on actual human capital development. Current online education initiatives are only a first small step towards discovering what that is, but I'm confident it will come. There's just too much economic potential being wasted for it not to happen."

Too stupid to live? The Soviet Union lasted seventy years. What we in the US call "the public school system" has survived around 170 years.

Maybe a degree signals uncritical acceptance of conventional thinking, a trait that hierarchical organizations might value. Then again, perhaps employers buy the connections that Ivy grads made in college. Has anyone considered the value of that to employers?

Brian writes:


I am looking forward to seeing the detailed arguments in the book, but what you provide here seems to lay out your overall thesis succinctly and with verve. Nicely done.

About the argument, however.... If I am reading you correctly, your case boils down to the following. 1) Evidence shows that education does little to impart practical work skills. 2) But even after accounting for intrinsic ability and motivation, the education premium still exists, even for seemingly impractical majors. 3) The obvious explanation is signaling because...what else could it be?

I find this disappointing. The "what else could it be" argument is one of the lamest and least imaginative around. It's never a good argument, but it's downright atrocious coming from someone who has always been imaginative and creative. I think--I hope--you can do better.

So what else CAN it be? Try comparative advantage, for one. College lets students develop a comparative advantage by specializing in a broad range of skills, such as verbal, visual, or quantitative approaches to knowledge. Even if a low-ability English or, yes, archaeology major learns no job-specific skills, he will still come out better at processing language than numbers. The opposite will be true of the high-ability electrical engineer. By having the two interact in the work place, value is added through specilaization and trade. This value is a direct result of human capital formation, not signaling.

You also say "Irrelevant education really is financially rewarding. Human capital purism can only respond with denial and dismay." But human capital purists would never be dismayed by financial reward from education. They would, and do, simply assert that education is not irrelevant. Comparative advantage is only one reason why their assertion is true.

Philippe writes:

[Comment removed for irrelevance.--Econlib Ed.]

Peter Gerdes writes:

Your argument against the contrainians would be compelling if the data we had in hand was that higher education is causally related to income.

Show me studies where a scholarship organization randomly selects from a pool of students who would otherwise not attend college and if the income gap remains there I'd be happy to admit you are right (this of course requires that the choice to distribute the scholarship is almost entirely determinative of college attendance in the relevant group).

Unexplained correlations about in science. The exact same argument you just gave tells us we are committing a fallacy in not admitting a genetic component to the lower IQs and higher rates of violent crime among blacks than whites. Sure, we don't actually have any causal evidence but we do have decades of research that, while succeeding in reducing the size of these differences by conditioning on various factors still hasn't rendered them insignificant.

So the question is does that tell us that we simply don't know enough to answer the question or that it's safe to infer the causal story?

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