Does subsidizing higher education increase or decrease signaling costs?

As of 2004, only 16.7% of the cost of Korean higher education was picked up by government, as opposed to an OECD average of about 77% (see this paper).  That’s a relatively low level of subsidy.  And yet Korea has one of the highest degree-granting rates in the world, the status of the school you go to is all-important, tiers of quality are fairly rigid, admission is closely linked to exam performance, and doubts have been raised about how much people actually learn in those schools.  At least when it comes to surface phenomena, it appears Korean higher education has a lot to do with signaling.

In Germany they just made the universities completely free, and in the past they were quite cheap, which of course means subsidized.  Germany also sends a relatively high percentage of its population to vocational training, where presumably the students learn some concrete skills.  Could it be there is too much slacking in German universities (which I have interacted with twice, both as student and as professor) for attendance to serve as a very effective signal?

Can it be the case that a government subsidy, by limiting privately-perceived quality and returns, can lower private signaling costs?  Should advocates of the signaling model therefore be more favorably inclined toward subsidies?


I'm going to get some popcorn ready for this thread.

I have a friend who was a visit professor from S Korea and he said that once they get in to a university in Korea they have won and so they do not do much work in college.
He also told me that he had his wife and daughters live here for a few years because in Korea they would leave for school in the morning and and not get back from tutoring until 10:00 pm. He was studying something related to psychology and saw this as bad.

I think the IQ (Steve Sailor and crew) people will argue that talent ranges in Japan, Korea and China are much tighter that hear and that is the reason that people work so hard to get into college. In the area of IQ they have a smaller percent of people below 100 and above 140 and the small differences that hard work make are what puts one over there competitors.

Relatively low German university attendance has much more to do with the German school system (children go to various school types after 4th grade, only some of these types allow them to go to university) than with tuition fees.

That always seemed really fucked up to me. Is it really wise to segregate students so early on?

From an American perspective, definitely not.

And yet, the fiercest defenders of the (changing) German educational system I have met are engineers, managers, research scientists, and business owners.

So, the group that benefitted from the Segregated system are the fiercest defenders? That's not particularly surprising.

Actually, the people that benefitted the most from the system tended to be people whose parents had also been graduates of Gymnasium - that is, teachers, university professors, and higher ranking Beamte. People whose benefits from the system were pretty much assured (it is always fun to see how many children of teachers/professors don't go to Gymnasium - many because pretty much they all do).

The people I know who are the fiercest defenders tended to have farmers or factory workers for parents - including the research scientist, the Mercedes manager, and at least one business owner.

However, unlike the teachers/professors, such people believe they earned their spot through hard work - and feel that the system should be retained to ensure that higher education is reserved for those that have earned it. Ironically, this also tends to mean they close their eyes to the reality that maybe a third of the students in Gymnasium (using only this town as an example, and only over the last decade and a half) are pure legacy attendees, in American terms.

Countries with selective education systems like this have much higher social mobility. Depends if you see that as a positive thing I guess.

While in America, for some reason, people think having nerds beaten by football players is character building or something.

While in America, for some reason, people think having nerds beaten by football players is character building or something.

Well it is of course. Are you a nerd?

Source? Germany has extremely low social mobility.

The field of optimization has a concept of an exploration-exploitation tradeoff. Say you're trying to maximize some relatively opaque and noisy objective function. To start you try different random parameters. Some of these parameters produce better output, so it makes sense to preferentially focus on the neighborhoods around those initial strong results (exploitation). However if you focus too much on a few or even just one very strong neighborhood, you're likely to wind up in a local maximum, and miss an even better global maximum (exploration).

Think of the age you segregate people based on abilities as an exploration-exploitation tradeoff. Is it wise to assume everyone have equal ability until age 40? Intensely focusing on bringing the slackers up to the levels of stars? Probably not. It's probably a good idea to restrict medical school to just the smartest students. On the other hand, segregate too young and you miss some late blooming stars. When considering these questions though, remember there's an extremely high correlation between even very young childhood IQ and adult IQ.

Amanda Ripley discussed this element of education in her interesting book The Smartest Kids in the world - comparing HS education in Finland, South Korea and Poland.

From the NY Times review

Ripley introduces us to Andrew Kim, “the $4 million teacher,” who makes a fortune as one of South Korea’s most in-demand hagwon instructors, and takes us on a ride-along with Korean authorities as they raid hagwons in Seoul, attempting to enforce a 10 p.m. study curfew. Academic pressure there is out of control, and government officials and school administrators know it — but they are no match for ambitious students and their parents, who understand that passing the country’s stringent graduation exam is the key to a successful, prosperous life.

Ripley is cleareyed about the serious drawbacks of this system: “In Korea, the hamster wheel created as many problems as it solved.” Still, if she had to choose between “the hamster wheel and the moon bounce that characterized many schools in the United States,” she would reluctantly pick the hamster wheel: “It was relentless and excessive, yes, but it also felt more honest. Kids in hamster-wheel countries knew what it felt like to grapple with complex ideas and think outside their comfort zone; they understood the value of persistence. They knew what it felt like to fail, work harder and do better. They were prepared for the modern world.” Not so American students, who are eased through high school only to discover, too late, that they lack the knowledge and skill to compete in the global economy.

And yet Korean-Americans outperform Koreans on educational tests

Immigrants are a very selected group -- the fact that their parents and/or grandparents went through all the hardships of settling in a foreign land means they are not the average Korean. So just because Korean-Americans outperform the average Korean doesn't mean the American education system is better than the Korean system (although it could be true).

I think the point is that all that studying doesn't do much.

Can it be the case that a government subsidy, by limiting privately-perceived quality and returns, can lower private signaling costs? Should advocates of the signaling model therefore be more favorably inclined toward subsidies?

This might be true and not only for education but also for healthcare.
So what is a sensible person to advocate. I think he advocates for free schooling for all with very low per pupal spending. IMO you could educate university student for $4,000/student per year. College students are generally well behaved so you can have very large classes so instructor costs could be very low. making it much cheaper than education children. You could try to educate students where their parent live so as to avoid separate living costs.
As far as medical care a sensible person could advocate government provided vaccinations, infant care and trauma and Government provided insurance that only covers very limited evidence based medical care that would refuse to pay for cancer treatment and do heart bypass or much surgery at all. People who want more could buy supplemental insurance.

Students are vessels teachers pour knowledge into, and the reason for small classes is to whack the kids are are sitting still so the knowledge pours in or to prevent students from bending down so knowledge pours out onto the floor?

On healthcare, you see Sarah Palin as a radical leftist because she's opposed to your government death panels?

I see Sarah Palin as a professional politician. Professional politicians say whatever they think will get them a win. She told the death panels story to motivate medicare recipients to work and vote for her. Politics is much more corrupt that it is ideological.

We don't do publicly funded evidence based care here.

Does the signaling model have advocates? I thought the people that interpret higher education as a signaling tool typically lament the observation.

Signalling need not be socially wasteful with heterogenous jobs. Matching efficiency gains can outweigh signal costs for society as well as high productivity individuals.

I think he means, "People advocate for the theory that the signaling model is correct," not "people who advocate for the utility of the signaling model."

He thinks that such people should support subsidizing college on the grounds that (possibly) subsidized college has fewer signaling effects, thus presumably making it less important to spend hundreds of thousands of dollars to signal, which everyone agrees is non-optimal.

People who instead believe that there is real value to college are presumably less affronted that it costs money (since it delivers, in their theory, non-relative value).

Here in the Philippines, tuition is low and not subsidized, but most people go into accounting or nursing, find that there are no jobs, and emigrate to countries in the Middle East, Europe or the USA (as nurses). I'm talking about the educated ones. And a lot of kids here only take 2 years of college. What does this prove? Not much, since TC's question is a tertiary one, akin to three move chess trap. You have to work backwards, and compounded with the ambiguities of the English language, it makes a tough question. Just reading his blurb without mapping it on paper will be a tough challenge. I wisely will sit this one out...

I cannot believe prior approval hasn't already commented with 10,000 words on this.

He is still typing

Or finished posting 14 minutes beforehand - not that anyone reads the comments, right?

What does it mean to say that tiers of quality are rigid but questions are raised about how much students are learning in those schools? I understand a claim that stratification is on reputation alone and is rigid in that regard, but I don't understand the claim anymore once you invoke quality.

I'm thinking it means "quality of students" rather than "quality of undergraduate education provided." There are no sports scholarships (that I know of,) no Affirmative Action, no admitting kids that don't quite make it academically but have great extra curriculars. The American equivalent might be Ivy League schools only admitting students with a 2200-2400 SAT and pretty much every student with an SAT in that range going to an Ivy League. Then your next step down would admit students in the 2000-2200 range, etc.

That's just a guess, though.

Is signaling bad? Presumably you can measure aptitude with tests, but what about commitment, work ethic, conscientiousness and other attributes employers want?

The signaling model (which I adhere to BTW) is seen as "depressing if true" because it means that (a) people are spending four+ years during their physical prime and hundreds of thousands of dollars to demonstrate something that could theoretically be demonstrated at a much lower cost, and (b) strategies for making college classes better or more rigorous are a waste of time, and (c) innovations like MARGINAL REVOLUTION UNIVERSITY are pointless and doomed to fail.

"theoretically be demonstrated at a much lower cost"

That's like saying there's a cheaper way signal than buying a Ferrari. The high barrier to entry is a feature, not a bug.

I don't think so. It's more like saying that instead of going through a long and bureaucratic process to prove you can afford a Ferrari, you could simply buy one.

'Could it be there is too much slacking in German universities (which I have interacted with twice, both as student and as professor) for attendance to serve as a very effective signal?'

Yeah, the students studying Maschinebau are real slackers - they have to complete a 6 week Praktikum in the first two years of their studies, for example. Which means applying for a position in a company involved in mechanical engineering, then having their work performance approved. And knowing that of an entering class of 700, 2/3 will not get a degree in Maschinenbau. On the plus side, Germany industry seems to have an unquenchable demand for engineers - anyone with a degree in Maschinenbau is pretty much assured a good job, with a number of companies competing for degree holders.

But then, it isn't as if German engineering students can be compared to German students studying economics - after all, Germany tends to be known more for exporting the products of its engineers' imaginations than the visions of its economists concerning a better world.

Apparently, to its detriment -

With Marx making a comeback though the trade balance may (sadly) reverse...

The irony is that people primarily buy their cars for luxury, brand, and signalling value. They still haven't figured out how to make a reliable car.

Cars? I was talking about things like advanced electrical infrastructure or green technology or networking technology - you know, things the Chinese want to buy (though a cynical German might say 'buy to copy and resell').

'Before their news conference, a series of business deals were signed including an agreement for European planemaker Airbus to sell 70 A320 single-aisle jets to China Aviation Supplies Holding Company, and a 25-year extension of carmaker Volkswagen’s joint venture with China’s FAW.

Deutsche Telekom announced a joint venture with China Mobile to build a digital network for cars on Chinese roads.


Li urged Germany to increase high-tech exports to China, support the inauguration of feasibility studies on a China-EU free trade zone, and help ease the EU’s high-tech export restrictions on China.


Li’s 14 ministers met 12 German counterparts to discuss cooperation in fields ranging from climate change and agriculture to using German green-technology to manage China’s breakneck economic growth.

Both sides signed some 30 cooperation and investment deals worth over 2 billion euros (US$2.5 billion) in sectors including health, education and the environment.'

Cars are a salient example.

You're comparing them to China? Having better engineering than China is not really anything to boast about.

Their engineering is not better than American engineering, despite the fact that we've all but abandoned manufacturing and engineering for decades while their entire economy is focused on it. British engineering is better as well.

Their vaunted "green tech" is mostly uneconomical, government subsidized crap. I'm not surprised the Chinese are interested, since much of their economy seems to be based on uneconomical, government subsidized crap.

'Cars are a salient example.'

Well, for many Americans. The Chinese leadership is currently a lot more concerned about massive environmental degradation, as is the Chinese population.

'Having better engineering than China is not really anything to boast about. '

Well, having engineering that the Chinese will pay money for is - not that American companies compete much on that level, of course.

'Their vaunted “green tech” is mostly uneconomical, government subsidized crap.'

Well, most Germans consider higher efficiency turbine designs with co-generation heat being supplied to households and businesses through district heating to be precisely the sort of green technology that a coal burning country like China is likely to be interested in paying for - after all, an increase in efficiency means a decrease in the amount of coal that needs to be mined, transported, and burned.

Siemens certainly thinks so - 'We boost the efficiency of coal- and gas-fired power generation and provide technologies for low-carbon fossil power generation. This is why gas and steam turbine power plants, cogeneration, power plant instrumentation and control, and the modernization of existing power plants have been added to the Environmental Portfolio.'

Not a single uneconomical government subsidy in sight (not that Siemens would ever turn one down).

Again, you’re comparing them to China. That's not really something to boast about.

It's not just cars. Even Airbus uses Rolls-Royce engines.

I'm confused? What is the "signal"?

Leaving school and having a job that affords one at least a middle class life?

German Hauptschule sound like the schools in Detroit, Philly, Louisiana, and lots of other poor inner city schools. What does that signal?

'German Hauptschule sound like the schools in Detroit, Philly, Louisiana, and lots of other poor inner city schools.'

Not even close, at least in Baden-Württemberg. A graduate of a Hauptschule is expected to have passed several years of classes in a foreign language (English, generally), there are no metal detectors at the school gates, and any student of a Hauptschule can switch to Realschule - the next highest level. Something that happens regularly enough that I can name at least 4 teenagers in this town who have done it in the last couple of years. Generally, the students who leave Hauptschule without entering Realschule are either fairly poor academic students, already have a job which requires minimal skills/skills that are taught on the job, or both.

And at least in Karlsruhe, the Hauptschule is just about gone.

Don't get me wrong - as an American, I find the German system distasteful. But when you look at funding, one sees, at least in Baden-Württemberg, that Hauptschulen are not neglected in resources in comparison to Realschule or Gynmasium. And yes, I work with a programmer who finished Hauptschule at 16 or so, worked as a Post Beamte for 18 months, returned to school to get her Abitur, then went to university - she is not exactly typical, but the German system is not as rigid as it appears from the outside.

What is true is that without Abitur, it is impossible to attend a German university. But Germany, unsurprisingly, has a number of other schools for further education, including Fachhochschule, and Berufschule - both tied more directly to professional qualifications, including Meister certification.

prior_approval seems to always post something along the lines of: "Over here in Germany we're better that you are".

Actually, when it comes to sexism, Germany is considerably worse than the U.S., especially in professional contexts.

Integration of immigrants? Considerably worse than the U.S., which will cause a number of problems in Germany into the future.

The falling birth rate in Germany causes a number of side effects - this not being the place to go into them, but in a broad sense, they can be considered negative.

Any desire to hear more? Just open up the Spiegel - Germans are wonderfully self-critical. One could consider it a negative trait.

What would reduce signaling value is not the government subsidy itself, but rather the expansion of crappy supply caused by the subsidies. If the government decides to pay the tuition of everyone accepted by Harvard, without any change in the number of places or admissions standards, that would be diminish the signaling value of a Harvard degree. If the government nationalizes Harvard and turns it into a gigantic multi-campus commuter school with 100,000 undergraduates, that would diminish its signaling value.

If getting into the uni is meritocratic, at least by some objective standard, the subsidy doesnt affect the signal at all. It is just a redistribution.

Of course this is in a closed system. To some extent the availability of foreign schooling is going to affect the signal.

Does anyone care either way?

I'm a little confused here.

Iirc, In the classic dichotomous quality model, the optimal signalling option sets cost for the low quality group just high enough to deter them from utilising it. Thus we get the allocative efficiency etc at minimal cost. With a quality distribution, it won't be quite as simple, but in general if accruing the signal is subsidised, then more people do so, and E(quality|Signal) falls, as does E(quality|No Signal). The information value of the signal (i.e. the difference) could either rise or fall, depending on how many people get the signal. If the choice is university vs the next below outside option, then I suspect the information value falls with the subsidy until the population splits 50-50, at which point it starts to increase.

If I understand Tyler's premise, it seems to be that subsidy => increased attendance => lower quality of signal (agree to this point) => less incentive to attend => fewer people will => less wasteful signalling. This seems to be confusing a shift in the demand curve with movement along i.e. for stability the latter effect can only partly offset the first, eg an increase in demand can't lead to reduced quantity because of higher prices. Unless I'm completely missing the point.

Having multiple thresholds (i.e. multiple outside options) should also be good in terms of allowing better self-sorting, perhaps this is where Germany benefits while South Korea does not?

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Hi, I'm a university student from Germany. Here are my observations on that topic:

- I find the German system relatively cost effective, because classes are usually large and infrastructure is old (i.e.used over a long period). It's relatively easy to get into any course of study (apart from medicine), once you have finished high school. BUT: a lof of people drop out in the first 1 or 2 years. Many people take longer than the normal 3 years to finish their first degree (it works as a sign of quality for you if you finish in time). In my experience the system works the same in, say, Switzerland, but it is very different from the United Kingdom, where it is a major challenge to get into a good university, but your almost guaranteed to finish your studies in 3 years.

- There are no clear Tiers among universities. The MUCH MUCH MUCH more important aspect is which course of study you pick (and complete). This means: math > physics > economics > history. It's simply a sign of underlying intelligence. (There should be a footnote here: Some universities are more reputable, such as the "Technische Universitäten" (TUs), such as TU Darmstadt or TU München. Some old universities are also more famous, such as Heidelberg. In economics, Bonn and Mannheim would be seen to be the best. Also, there are "Fachhochschulen" which are more applied.")

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