In a tangential remark in this typically fantastic post, Bryan Caplan revives an idea which has been unjustly neglected in recent years in the UK. He says: “education is mainly a signal, rather than a place to acquire job skills.”
If this is right, New Labour’s expansion of higher education is a truly bad idea – it’s both inefficient and socially inegalitarian.
Inefficient, because the more people that have a degree, the weaker is the signal that someone has the sort of ability that an employer really wants. That increases the chances of poor hiring decisions.
Inegalitarian, because if mere possession of a degree doesn’t send a strong enough signal about ability, employers will use other reasons to hire people. These factors – “a good attitude”, “will fit in” – are likely to discriminate against able people from working class backgrounds. That’ll reduce social mobility.
So, what’s the evidence for signaling theory? Four facts, tucked away in this pdf and in an article by Richard Blundell and colleagues in the February 2000 Economic Journal, should make one ponder:
1. Mature students earn less than newer graduates, despite having the same human capital. This might be because mature students convey a signal that they weren’t smart enough to go to university straight from school, or are not committed to the world of work, or are just bolshy (you don't often meet a Conservative mature student, do you?) . Whatever the reason, this seems more consistent with signaling theory than human capital theory.
2. Students who take gap years earn much more than students who don’t; the gap is almost as great as the return to a degree itself. Taking a gap year doesn’t necessarily build skills, but it reveals character traits (being middle-class) valued by employers.
3. Returns to vocational education are often low, relative to non-vocational courses. Oxford classics graduates earn good money, even though the ability to converse with a dead Roman is not required for many jobs.
4. University drop-outs earn less than people with just A levels. Human capital theory says this shouldn’t happen – because they have a little more education. Signaling theory says it should. Drop-outs signal a lack of determination, which is a bad sign for employers.
Of course, this evidence is not conclusive; there is evidence for human capital theory too. But surely, it is suggestive of a worrying possibility – that the signaling hypothesis might be right, and therefore that the expansion of higher education is a really bad idea.