Bryan Caplan  

Do Credential Scandals Support the Signaling Model?

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Every now and then, the world suddenly learns that a perfectly competent worker faked his credentials.  Consider the case of MIT's former head of admissions:

Marilee Jones, the dean of admissions at the Massachusetts Institute of Technology... admitted that she had fabricated her own educational credentials and resigned after nearly three decades at MIT. Officials of the institute said she did not have even an undergraduate degree.

"I misrepresented my academic degrees when I first applied to MIT 28 years ago and did not have the courage to correct my résumé when I applied for my current job or at any time since," Jones said in a statement posted on the institute's Web site. "I am deeply sorry for this and for disappointing so many in the MIT community and beyond who supported me, believed in me, and who have given me extraordinary opportunities."

[...]

Jones, 55, originally from Albany, New York, had on various occasions represented herself as having degrees from three upstate New York institutions: Albany Medical College, Union College and Rensselaer Polytechnic Institute. In fact, she had no degrees from any of those places, or anywhere else, MIT officials said.

A spokesman for Rensselaer said Jones had not graduated from there, though she did attend as a part-time nonmatriculated student during the 1974-75 school year. The other colleges said they had no record of her.

When credential scandals break, fans of the signaling model of education often run a victory lap.  Should they?  On the surface, credential scandals seem inconsistent with both the standard human capital model and the signaling model.  Remember: Both models predict that the more-educated will be better workers than the less-educated.  In the human capital model, educated workers are better because school instills job skills.  In the signaling model, educated workers are better because school certifies job skills.  From both perspectives, then, the fact that Marilee Jones could fake her credentials, then do a fine job for 28 years, is weird.

On deeper reflection, however, the signaling model makes credential scandals less weird than the human capital model.  In the human capital model, there is no need to fake credentials; the market knows what you can do, and pays you accordingly.  In the signaling model, in contrast, the market has to guess what you can do.  If the initial guess is unfavorable, a qualified worker may fail to even land an interview, much less a job. 

So what?  Ponder a job-seeker's incentive to lie in the following two scenarios.  In the first scenario, you lack both credentials and the skills those credentials normally indicate.  In the second, you're a diamond in the rough - someone whose credentials understate their true skills.

Scenario #1: In the absence of deception, the market will correctly guess that you're not good enough for the job.  What does lying get you?  If your employer fires you as soon as he discovers your incompetence, you still get paid above your true market value for a few weeks or months.  Given a typical firing-averse employer, you may get paid above your true market value until the next recession.

Scenario #2: In the absence of deception, the market will incorrectly guess that you're not good enough for the job.  What does lying get you?  Your big break!  Your lie wins you an opportunity, and that opportunity allows you to win an employer's esteem - and start permanently earning your true market value.

The incentive to lie in Scenario #1 is plain.  But in Scenario #2, the incentive to lie is overwhelming!  If you're really a diamond in the rough, one well-crafted lie can change your life for the rest of your life.  Or at least 28 years.

If all this is true, why do firms so often punish credential fraud with termination?  "Credibility" is the obvious answer.  Forgiving credential fraud committed in the past is a great way to encourage more credential fraud in the future. 

But this answer dodges the more fundamental question: Why should firms detest credential fraud so much in the first place?  In the human capital model, it's unclear.  When you pay workers for their actual productivity, there's little need to police what workers claim about their productivity, because so little hinges on such claims. 

In the signaling model, in contrast, perception is all-important, because you pay workers for their perceived productivity.  Harshly punishing credential scandals sends a valuable message to all your present and future workers: "Never mess with my perceptions."

So yes, credential scandals do support the signaling model.  But instead of running victory laps, fans of signaling should carefully explain why these scandals are weird, and how their preferred model makes the weirdness normal.



COMMENTS (7 to date)
Richard Besserer writes:

The above, of course, that the candidate is otherwise qualified to do the job and the credential really is pure signal. The individual who lied on his resume but is hired anyway and stays on for any length of time may simply be better at faking competence by getting other people to do his job for him. Once they start lying, they have to keep lying.

Even if years of experience eventually make the liar genuinely competent, the firm is out several man-years of on-the-job training that it thought it did not need to carry out.

Given how often people who definitely have the credentials they claim do this (every workplace has them!), I suspect the non-credentialed without the training they claim have an even bigger incentive to do so.

It would be nice to talk to this guy's colleagues, past and present. Let's see how good at his job he really was. If it turned out he was outed by a disgruntled subordinate who was tired of covering his boss's back, I wouldn't be at all surprised.

Tiago writes:

Isn't the fact that people don't like to be lied to a simpler explanation?

Peter H writes:

I think the answer to this question is relatively easy:

Why should firms detest credential fraud so much in the first place?

Ability to do a job well is one important criterion for an employee. But there are others. Specifically, an employee who engages in credential fraud is revealing a predisposition to defraud their employer for pecuniary gain.

Since a lot of frauds are difficult to detect, if I as an employer get any evidence you're scamming me, you're out the door. I don't know what else you're willing to lie about.

In the case of the head of admissions for a prestigious university for example, there is great opportunity to solicit personal bribes from the families of wealthy applicants, as opposed to soliciting bribes that go to the institution.

Her degrees were irrelevant. She didn't claim an MBA or a law degree, or something that might possibly indicate she had a head for business or administration, or level-headed thinking.

It probably didn't hurt that her first job was secretarial and a college grad had a leg up, but given that she actually had a bio degree and didn't need to lie, I don't see that really making a huge difference, either.

She worked her way up, beginning as an admin assistant, eventually becoming the person who would "diversify" MIT's undergraduates (in those days, that meant more female students). When she applied for the job, the fact that she would be the first female in that position almost certainly played a part.

She's clearly not the type of person that MITers would consider to be genuinely bright. More the type of go-getter that took an unpleasant task off the list of thing that needed to be done.

MIT would never have given her a job that was considered really important without checking her credentials, and she actually had the education that would have been all she needed to work her way up to that job. So her case doesn't prove your point one way or another.

If she was teaching biology or doing research, it would be a relevant example.

Glen Smith writes:

In the case directly used, the actor may have had the needed education (she was a student but no data is given about how much work she actually accomplished) but not the credential (the sheepskin). The HC model only supports the value of education in learning how to do the job but admits that the credential is nothing but a marketing ploy. If one lies about the credential but does have the education, HC would still predict success. Lying about having the credential becomes even more likely with the rise of things such as free/low-price education opportunities on-line.

Of course, in my profession it is was pretty well accepted that school teaches you very little (perhaps the basic framework needed) but you actually learned how to do the job by doing the job. Seems to have gone away in the last 20 or so years and now the employers are desperate for qualified people and qualified potential employees are desperate for jobs.

By the way, people hate being lied to when the liar is caught but they love being lied to until the liar is caught.

Bob writes:

The rational organization will work at verifying credentials for prospective hires, but will make no effort whatsoever at checking the credentials for people that are already there, and would probably go as far as possible as to make the credentials presented to it when it made the hires as unavailable as possible.

If I hired someone, they lied to me, and yet managed to do the job properly, why would I want to risk having to kick them out for lying to save face? Better to not display any credentials if I can help it.

dullgeek writes:

It seems pretty clear to me why the signaling folks do a victory lap. And I don't think it needs all of Prof Caplan's extra explanation.

It seems to me that part of what was being certified by the signalling model was a worker's ability to learn / complete long term projects. And in such a model, the vast majority of the job skills are learned on the job, rather than in university. But an employer has reason to believe that the employee can complete this non-trivial project because that employee was certified as having done so by the university.

It could very well be that many workers have this ability without getting the certification. In which case, they get on the job and learn all the job skills required and are productive employees without the certification.

In the human capital model, the job skills are learned at university. So it's hard to explain how an employee could fake their credentials and then be successful for 28 years.

Is this the simpler explanation as to why the signalers do a victory lap?

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