Education isn’t mainly about signalling

by on March 26, 2008 at 7:33 am in Education | Permalink

We find that employer learning about productivity occurs fairly quickly after labor market entry, implying that the signaling effects of schooling are small.

Here is much more.  And here is more yet; this second paper estimates the speed of employer learning and uses that estimate to bound the value of the signal at no more than 28 percent of the value of education.  I consider this devastating to the signaling hypothesis.  How can ?? years of schooling be needed to signal your quality, if your employer often knows your quality within months? 

In my view education is mainly about indoctrination to give you more productive habits.  So yes it is learning, but not in the way they might have told you, and that is why it so often does not feel like learning.

josh March 26, 2008 at 7:47 am

Could it simply be that what we mistook for signalling was purely self selection, and that schooling has practically no benefit at all?

burger flipper March 26, 2008 at 8:12 am
Steve Miller March 26, 2008 at 8:30 am

Education signals conscientiousness, not ability. Throwing out the resumes of non-degreed applicants allows employers to choose from a pool of people who meet some minimum level of conscientiousness. Then they can “learn” who is productive and who isn’t. Also, saying signaling is “only” 28% of education’s value is a bit like saying aerodynamic considerations are “only” 28% (or whatever) determinant of a car’s fuel efficiency.

Phil March 26, 2008 at 9:16 am

>”In my view education is mainly about indoctrination to give you more productive habits.”

Is there really no way for other way employers to test whether you have productive habits? Four years of school seems like a very expensive way to establish that you have good habits.

And so what is the purpose of a graduate degree? Are your habits so much better after seven years of school instead of four?

bobvis March 26, 2008 at 9:42 am

I think Dr. Cowen misses that the cost of hiring an employee and firing them 3 months later far exceeds the salary of that employee. Selecting the individual takes a lot of time and money from the organization. Additionally, there may be severance pay, CORBA, and all sorts of other stuff to consider. Finally, there is also the possibility of opening oneself to lawsuits.

Oh, and there is training. Training a new employee takes more money and time away from existing workers.

Altogether, if education is a worthwhile signal, you should use it–even if you will be able to verify the employees usefulness in a few months, it will cost you a lot of time and effort to get to that point. Having the information now instead of 3 months from now is of great valuable.

hwinva March 26, 2008 at 10:34 am

As rent-seekers, those who confer diplomas desire require payments that seem to them sufficient in return for the signal they permit the prospective graduate to display. That’s why they require “??” years.

Think of it this way — if you were given the opportunity to hire 2 recent high school graduates as summer employees — one going to Harvard and one going to, say (I was going to say “GMU” but never mind) Northern Va Community College, you might favor the one going to Harvard. Signal given, and received.

yakov March 26, 2008 at 11:20 am

I’m not sure why:

1) You feel your identity is “established” by your mid 20′s – lots of people go back to school far later in life and I doubt it is because they are mistaken as to the value of schooling;

2) neither model appears to account for the joy of schooling, I don’t think you can explain liberal arts or university without taking into account people enjoy it – sitting around discussing philosophy is enjoyable itself, and people spend an awful lot on enjoyable hobbies.

Kevin March 26, 2008 at 11:57 am

What self-respecting professional would take a job at a company that might fire her after three months?

Tim perri March 26, 2008 at 12:54 pm

See the paper (link below) by ARCIDIACONO et al. It suggests higher ed. leads to direct revelation of ability.

There is a large return to human capital investment, so education can add significantly to human capital & still be (in some cases) a signal.

http://www.nber.org/~confer/2007/hiedf07/bayer.pdf

liberty March 26, 2008 at 1:31 pm

A lot of good points made here. I would add:

1. It entirely depends on the job. Some jobs require skills which can be shown easily before hire and having that skill also demonstrates study skills (required to learn the skill), etc. Software development is an obvious example. What a college degree in those cases signals is: (1) Willingness to endure 4 years of, probably low-grade, education in the field – submissiveness, (2) Some higher probability of a rounder education than the self-taught.

2. I don’t buy the argument that non-professional school doesn’t teach you anything worthwhile for a job. Learning about medieval literature, as a pre-requisite for a bank manager job, or something. I think its only a signal, and I would certainly think it stupid if it is used as a requirement, rather than one of many potential signals, but I do think that the education helps to hone an ability to reason, to think in new ways and understand arguments made by others, to think abstractly, and so forth.

I know some claim to have debunked this, but not to my satisfaction. And, having been in school and out of school, on and off for many years, I believe my own experience and not the weak papers I have read on the subject. Also, somebody showed that the longer you stay in school the more abstractly you think, which supports my hypothesis.

TGGP March 26, 2008 at 5:58 pm
yakov March 27, 2008 at 12:06 am

If it is about quality why not just use potential employee’s SAT scores? Is a university education really much better at predicting outcomes than the SAT alone? I’d imagine it evens out given variations between universities.

aamir March 27, 2008 at 1:01 pm

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John Dewey March 28, 2008 at 11:07 am

“This is consistent with claims that there is a steep learning curve when one enters the workforce. Why should this be if a degree is worth anything?”

In the science and business schools, universities provide general knowledge and a few specific skills that can be applied in a large variety of jobs. That general knowledge is essentially to understanding more specific knowledge. When graduates move into specific, specialized positions, they must learn very specific details about those jobs. That doesn’t mean the general university knowledge they gained was worthless.

Here’s an example: a chemical engineering student will learn the basics of fluid mechanics, heat transfer, organic chemistry, process control, and a lot more difficult concepts. At the time he is learning, he doesn’t know whether he will be working for a petroleum refinery, for a pharmacuetical manufacturer, for an environmental consulting firm, for a food processor, or any other of the thousands of potential employers. If he learned only what was needed for a specific job, he would severely limit his career options, both initially and throughout his career.

Once on the job, the chemical engineer must learn the specifics about the exact process or task he is managing. Often his output impacts the firm at a far greater value than he is being paid. The company needs the engineer to learn the task very quickly, and knows that he will need some but not all of the basics he learned in the university.

david foster April 1, 2008 at 11:55 am

The length of time it takes for an employer to learn about employee ability/productivity is entirely dependent on the kind of job. Suppose I hire a regional sales manager for a region that has previously not been well-managed. He will probably have to replace some of the people and hire new ones. He may well have to make changes in the way prospecting is done. He will have to develop a pipeline of prospects and work to bring them to close: for major capital equipment sales, this may take months or even years. It will probably take a minimum of one year to reasonably assess his job performance.

For an engineering manager, the time taken to assess performance will generally be as long or longer.

micky May 15, 2009 at 1:22 am

all countries are pay more attention on the education

kate May 15, 2009 at 1:24 am

it is a good topic

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