Schools and Signals
The standard view of school is that school is to teach children skills for work and life. However, this view has increasingly been questioned by sociologists and economists because of a number of jarring inconsistencies. What school accomplishes is important for public policy, since education is a huge part of what the government spends money on.
The justification for these expenditures fall into two categories: higher tax revenue stemming from higher wages and more educated citizens leading to better public policy. However, with skyrocketing tuition costs, and the crushing level of student debt these days, people are reexamining if such costs are justified. One explanation of why college might not be all its cracked up to be is that it mostly consists of a signal, rather than an investment.
Signals are things people do to tell one another about who they are. They comprise a large amount of economic action. The clothes you wear, the car you drive, and the media you consume all tell others what sort of person you are. Signals of valuable traits must be hard to fake in order to be credible. When people go into the job market, they need to signal to their potential employers that they are smart, hardworking, team players, conscientious, and willing to follow directions. Hiring the wrong worker is very expensive to the firm, as they might not find out about a worker’s true productivity for a year or more, and in the meantime, they have potentially forgone a better worker and spent money training the bad worker. One of the best ways to signal those traits is with a college degree.
But if some of the value of a college degree is signaling, that reduces its’ positive externalities because of a tragedy of the commons. If 30% of students go to college, a college degree shows you near the top of academic ability. If you don’t have a college degree in that environment, you are still likely to be fairly smart and/or capable. If 80% of students get a college degree, not having one shows you are near the bottom of academic ability, or are very poor, etc. One of the reason why wages for those with only a high school diploma have been going down over the years is that the quality of student with only a high school diploma is going down as more and more mediocre students get college degrees. Each additional student that attends college inflicts a negative externality on those who don’t, by making them look worse by comparison.
Evidence for Signalling
Cost spirals up, but studying has gone down significantly. If education were an investment, students would put more effort into getting their money’s worth.
Curriculum content – Most degrees and classes are useless, or overly specialized. Education which is an investment would be focused on practical skills
Forgetting vs. Failing – Students are penalized for failing classes, but not for forgetting material after the test is over. This implies schooling is more like an IQ test than an acquisition of practical skills
Grade inflation/Cancelled classes – If education were an investment, students would be upset by grade inflation and missed classes. Instead, they are happy, because easy grades reduces the investment, but strengthens the signal.
What does Schooling Do?
Perhaps the skills schools teach aren’t that critical, but they do teach students something. One theory of schools is that they teach cultural values that are highly important to the workplace. Students sit in rows, unmoving and in silence, listening to the teacher drone on endlessly about a subject they don’t care about, doing repetitive work. Such behavior is unheard of with normal children, but it is very useful on a factory floor. Students get used to doing things they don’t enjoy, taking orders from authority figures without demanding reasons or explanations, and being ranked relative to their peers and rewarded based on that ranking – all things that they will encounter in a work environment. Why are high school students required to get up earlier than elementary students? Studies show that teenagers perform better later in the day, but schools are there to acclimate children to living based on others’ schedules.
Signaling is not all wasteful – learning how to signal is important too. Much of success in life is being able to convince others that you are worthy of trust and capable. Even if all schools did was teach people how to project a good self image, their effort would not be wasted. Still, that does not negate the negative externality issue. Perhaps it is time to tone down the subsidies to schooling, especially when that schooling does not teach practical skills.
Bryan Caplan on signaling.
David Autor on Signaling
Tyler Cowen on Signaling
Hanson on Signaling
A good intro article
Survey Paper on Returns to Education
Stylized facts about the labor market
Agricultural yields as an instrumental variable
Marginal returns to college might be going up, because high school is so bad these days.
This is my 100th non-link post! Huzzah!