Signaling in education

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.

Comments

[James]

I have been thinking about just this subject recently. I couldn't really afford university when I was younger and my loyalties were always stretched between the McJob and school work. I finally gave up and joined the US Navy, to take advantage of educational benefits. I am now studying for a bachelor's degree in business finance from an American university in my spare time. While this impresses my immediate line manager, I highly doubt it would impress the people above him...Everyone my age here in England had more of an opportunity to pursue a bachelor's degree than I did in the US.

I really appreciated the issues you brought up about expansion of higher education while I lived in Germany. I was actually hired in London because my company could not find people who were competent or experienced enough to handle the job I took on in Germany. (Ironically, I beat out an Oxbridge graduate for the role.)

After a while, it appeared that the position was in danger of existing, so I had to start looking for work. In Germany, most of the people who would be considered my colleagues would have at least five years of state subsidised education. (In fact, many people I would interview for assignment to roles within our company had doctorates.) But I had no higher education qualifications. I had almost 20 years of work experience, most of it in management positions, but my CV would be tossed out in favour of people who only knew how to collect the dole and go to university.

Anyway, when its prizes all around, the qualifications become meaningless. Although I'll be proud when I finally graduate, because I have worked for it.

Thanks for letting me twitter on; great blog.

Regards,
James

[Jarndyce]

Surely an expansion of so-called 'vocational training courses' (HND, BTEC) and apprenticeships would go some way towards addressing the human capital deficit of continued education? Perhaps that's where the government ought to be focusing.

I would just chuck one more factor in: a value in education that is captured by neither human capital nor signaling theory - an purely innate value that produces utility that expects no specific return to the individual, and the obviously unquantifiable societal benefits ('having an educated population') that would flow from that. Of course, that's something that would be near impossible to measure so we could argue about it all night and get no resolution. Might it have an impact on crime levels, for instance? No idea what the answer to that is - I'll just leave the question hanging.

[Blimpish]

Made me laugh you cited a DfES research report - there are some great gems in the research they paid for, that if taken together undermine most of current education policy. Might well be one of the reasons why they're less interested in funding research projects these days..!

[dearieme]

I've worked in Unis most of my life and have always KNOWN that for many of the students it was signals that matter: didn't it use to be called credentialism? But three thoughts: (1) there are great wodges of uni where it ain't so, or at least it's less so - medics, vets, engineers, lawyers etc (2) as the educational levels of school leavers sinks, the educational merits of Unis could become more important, but for (3) my guess is that in the humanities the education imparted in British Unis is sinking steadily. One result is, I suspect, that in the humanities, the difference in standard between Oxbridge and the rest keeps growing whereas in medicine, for instance, it matters much less where you go. All British medical schools are, in my supposition, full of bright students amd bright staff, and all will work you hard.

[rjw]

It's an interesting hypothesis. The real answer is probably that education does both - it (generally) improves human capital , but it also acts as a screen.

People with degrees demonstrate the ability to stick the course and therby signal their personal qualities, but also they demonstrate a certain minimum of academic ability/training (a reservation level of training if you like).

Is there an obvious reason why it should be exclusively one or the other? Both points are attractive to employers. Employers in diffferent sectors moreover may put different weights on one or other quality and/or signal.

An interesting issue is the question of how this affects the case for students paying their own way. If state subsidy to students has little return in terms of human capital, and all one is doing is shuffling people on a list, then why spend public money on it?

[tomen]

Might well be one of the reasons why they're less interested in funding research projects these days

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http://www.karlosblog.com/

[Niall]

What is the evidence for the statement that "Mature students earn less than newer graduates". Does it apply to the many part-time, mature students e.g. with Open University? Such students are unlikely to be doing the same jobs as recent graduates. (Link to PDF does not seem to work)