There are two influential theories of the value of education: the human capital theory and the signalling theory. According to the former your education makes you more productive, and in so doing enables you to land good jobs with good salaries. According to the latter, education in itself doesn’t make you more productive. However, having acquired a place and good grades at a prestigious university is a signal that you have certain desirable features (eg intelligence, conscientiousness).
Now it seems to me that if the signalling theory is right, then it doesn’t matter that much what students actually learn during college, as long as employers can continue to predict who’s going to be a good worker on the basis of degrees and grades. Hence if that theory is right, the market would only exercise a weak pressure to improve educational standards.
No doubt the human capital theory is closer to the truth in some areas (say medicine) than in others (say a classics student at Oxford who lands a job at a bank). However, it is a further aspect to take into consideration.
I’d be interested to hear why you think that the market would be good at correcting for this. For one thing, we often lack reliable measures of how much students learn (I take it that this is what OECD is now trying to remedy). Hence employers go by reputation even if second-tier universities are in fact better.
Another issue that should be noted is that teaching is a necessary evil for most professors: what they really are interested in is research. Also they are hired mostly on the basis of their research output. This incentivizes them not to spend too much time or effort on teaching, something which leads to a further lowering of standards.
Obviously, signalling is an important part of university education. People pay $100′s of thousands of dollars for a degree, not for an education. And people are much more concerned about making sure they get the degree, and much less worried about whether or not they got the education.
I suppose it is less obvious whether the “human capital” is really developed by education, but I believe it is and I suspect most people who succeed in school or in teaching believe it does. I was an entirely different person after my BA in Physics than before, with mad skills at analyzing all sorts of physical systems and formal systems. I knew and used mathematical techniques up the yinyang as well as a tremendous amount of physics and chemistry. The skills I acquired as an undergrad were essential for my graduate work. I was again an entirely different person coming out of graduate school, able to be expert in some areas, and able to tell the difference between what I was expert at and what I was not expert at.
In my opinion, you would have to be blind to miss the importance of signalling in higher education. In my opinion it would be easier to miss the importance of the training, but that effect is real nonetheless.
I don’t know, unfortunately. It seems to me it would be hard to measure. The relative importance of human capital effects and signalling effects are also very hard to measure. On this, I would recommend reading this article on how a recent British government report completely disregards the signalling theory and without argument assumes that the human capital theory is right:
Regarding the signalling effects of higher education, BIS [Department for Business, Innovation and Skills] assumes that “higher earnings reflect higher productivity as a result of learning (ie, there is effectively no signalling effect)”.
This is an “extraordinary” assumption, according to Alison Wolf, Sir Roy Griffiths professor of public sector management at King’s College London. “I had no idea they didn’t take [signalling] into account at all,” she said, adding that failing to account for it was “bad policy and bad economics”.
Further down:
The debate between human capital and signalling theory is a political as well as economic argument, according to David Palfreyman, director of the Oxford Centre for Higher Education Policy Studies. What he calls the higher education “lobby”, through Universities UK, “naturally argues the human capital theory line as a way of getting extra public money and/or justifying the charging of high tuition fees to the punters”.
Politicians also “hope” human capital theory “might be true as they flounder around trying to find something they can do to hopefully achieve economic growth”, he said.
Asked if BIS would take signalling into account in future given the report’s findings, a spokeswoman said the study “acknowledges the potential role of signalling in driving the observed earnings returns to degrees” but also “highlights that there is no consensus from the literature about their magnitude”.
“The authors therefore recommend that we should not reduce the estimated earnings returns to reflect signalling – as any reduction we applied would be arbitrary,” she added. “We will however continue to consider the implications of signalling effects in policy development and also in the development of any research in this area.”
As if zero signalling effect is not arbitrary… This is quite outrageous actually and should have received more attention.
Possibly we shouldd have another discussion of human capital vs signalling in higher education, and what to do to minimize costly side-effects of signalling.
There is a third factor that both BIS and THE ignore: tournament theory. If there is a set amount of productivity possible in a field, and the people in the field are selected according some ranking, then improving a person’s ranking will increase their productivity, but it doesn’t follow that the productivity of society as a whole is improved.
For instance, if you look at how much coaching a high school baseball player gets, and whether they get into MLB, you’ll probably find a correlation. So giving a student coaching increases their productivity. But that doesn’t mean that society benefits from the student getting coaching. There is a finite number of players in MLB, and a finite amount of benefit that society receives from it, and coaching a particular student just means that the benefits move from some other student who would have become a professional baseball player.
For example, in some societies, women might generally earn less than men at the same rank despite having the same qualifications, indicating that factors other than educational achievement and productivity are at play.
Not necessarily. Besides the (unlikely, but cannot be dismissed a priori) hypothesis that women inherently less productivity, if there is prejudice against women, then that can cause women to be less productive. For instance, if judges are less likely to rule in favor a female lawyer, then women make less productive lawyers. “Productivity” isn’t merely a property of a person’s inherent abilities, it’s also influenced by the society they live.
I’d expect the market to correct first on the students side by creating reliable tools to determine which college is most cost effective (e.g. a simple measure would be average time before repayment of college loan), which would then lead students to these colleges which are more cost effective, which would lead colleges to focus on employability-related courses (and on specializing etc).
Now there is the fact that people have conflicting notions of what education is for, because they’re also looking for signalling, and could thus be misguided in their seeking of information (looking only for the most prestigious college in their affordable range). Another thing is that employers, not students, are purchasers of signalling and consider that current institutions do a good job. But I struggle to think why that wouldn’t allow the development of fast-track colleges that would compress costs by focusing on employability-related courses, making them more cost-effective for a similar quality of graduates offered to employers.
Now it seems to me that if the signalling theory is right, then it doesn’t matter that much what students actually learn during college, as long as employers can continue to predict who’s going to be a good worker on the basis of degrees and grades.
Well, according to the signalling theory, we should see education focusing on material for which the ease at which students learn it is correlated with how productive an employee they would be. So, for instance, if people with a comparative advantage in memorizing the entire Divine Comedy in the original Italian also tend to be good workers, but people who with a comparative advantage in memorizing baseball statistics don’t, then signalling theory predicts that schools will teach the Divine Comedy, and not baseball statistics. And signalling theory does predict that there would be strong pressure to improve educational standards; it’s just that that pressure would be towards making sure that students actually have memorized the Divine Comedy, rather than making sure that they have actually increased their human capital.
Employers who focus on the signals your education emits seem to focus on where you studied rather than on what you studied. In other words, they seem to think that having a degree from Oxbridge correlates with being a good worker more strongly than memorizing the Divine Comedy does, or acquiring any other specific set of knowledge does. This belief (in the superior signalling value of an Oxbridge degree) seems to be quite weakly correlated with what Oxbridge and competing universities actually teach their students. It seems to me that universities’ reputations are quite sticky, so that even if a red-brick university tried to raise standards in order to raise the signalling value of their degree, they wouldn’t be able to beat the signalling value of an Oxbridge degree. If this is true, then employers’ focus on signalling implies a very weak pressure on educational standards. If employers are going to give your degree pretty much the same signalling value regardless of the content of your course, then universities’ will not be incentivized to improve or even maintain educational standards.
There are two influential theories of the value of education: the human capital theory and the signalling theory. According to the former your education makes you more productive, and in so doing enables you to land good jobs with good salaries. According to the latter, education in itself doesn’t make you more productive. However, having acquired a place and good grades at a prestigious university is a signal that you have certain desirable features (eg intelligence, conscientiousness).
Now it seems to me that if the signalling theory is right, then it doesn’t matter that much what students actually learn during college, as long as employers can continue to predict who’s going to be a good worker on the basis of degrees and grades. Hence if that theory is right, the market would only exercise a weak pressure to improve educational standards.
No doubt the human capital theory is closer to the truth in some areas (say medicine) than in others (say a classics student at Oxford who lands a job at a bank). However, it is a further aspect to take into consideration.
I’d be interested to hear why you think that the market would be good at correcting for this. For one thing, we often lack reliable measures of how much students learn (I take it that this is what OECD is now trying to remedy). Hence employers go by reputation even if second-tier universities are in fact better.
Another issue that should be noted is that teaching is a necessary evil for most professors: what they really are interested in is research. Also they are hired mostly on the basis of their research output. This incentivizes them not to spend too much time or effort on teaching, something which leads to a further lowering of standards.
Obviously, signalling is an important part of university education. People pay $100′s of thousands of dollars for a degree, not for an education. And people are much more concerned about making sure they get the degree, and much less worried about whether or not they got the education.
I suppose it is less obvious whether the “human capital” is really developed by education, but I believe it is and I suspect most people who succeed in school or in teaching believe it does. I was an entirely different person after my BA in Physics than before, with mad skills at analyzing all sorts of physical systems and formal systems. I knew and used mathematical techniques up the yinyang as well as a tremendous amount of physics and chemistry. The skills I acquired as an undergrad were essential for my graduate work. I was again an entirely different person coming out of graduate school, able to be expert in some areas, and able to tell the difference between what I was expert at and what I was not expert at.
In my opinion, you would have to be blind to miss the importance of signalling in higher education. In my opinion it would be easier to miss the importance of the training, but that effect is real nonetheless.
Even under human capital theory, do we have a good measure of the added value of good teaching versus poor teaching?
I don’t know, unfortunately. It seems to me it would be hard to measure. The relative importance of human capital effects and signalling effects are also very hard to measure. On this, I would recommend reading this article on how a recent British government report completely disregards the signalling theory and without argument assumes that the human capital theory is right:
Further down:
As if zero signalling effect is not arbitrary… This is quite outrageous actually and should have received more attention.
Possibly we shouldd have another discussion of human capital vs signalling in higher education, and what to do to minimize costly side-effects of signalling.
There is a third factor that both BIS and THE ignore: tournament theory. If there is a set amount of productivity possible in a field, and the people in the field are selected according some ranking, then improving a person’s ranking will increase their productivity, but it doesn’t follow that the productivity of society as a whole is improved.
For instance, if you look at how much coaching a high school baseball player gets, and whether they get into MLB, you’ll probably find a correlation. So giving a student coaching increases their productivity. But that doesn’t mean that society benefits from the student getting coaching. There is a finite number of players in MLB, and a finite amount of benefit that society receives from it, and coaching a particular student just means that the benefits move from some other student who would have become a professional baseball player.
Not necessarily. Besides the (unlikely, but cannot be dismissed a priori) hypothesis that women inherently less productivity, if there is prejudice against women, then that can cause women to be less productive. For instance, if judges are less likely to rule in favor a female lawyer, then women make less productive lawyers. “Productivity” isn’t merely a property of a person’s inherent abilities, it’s also influenced by the society they live.
I’d expect the market to correct first on the students side by creating reliable tools to determine which college is most cost effective (e.g. a simple measure would be average time before repayment of college loan), which would then lead students to these colleges which are more cost effective, which would lead colleges to focus on employability-related courses (and on specializing etc).
Now there is the fact that people have conflicting notions of what education is for, because they’re also looking for signalling, and could thus be misguided in their seeking of information (looking only for the most prestigious college in their affordable range).
Another thing is that employers, not students, are purchasers of signalling and consider that current institutions do a good job.
But I struggle to think why that wouldn’t allow the development of fast-track colleges that would compress costs by focusing on employability-related courses, making them more cost-effective for a similar quality of graduates offered to employers.
Well, according to the signalling theory, we should see education focusing on material for which the ease at which students learn it is correlated with how productive an employee they would be. So, for instance, if people with a comparative advantage in memorizing the entire Divine Comedy in the original Italian also tend to be good workers, but people who with a comparative advantage in memorizing baseball statistics don’t, then signalling theory predicts that schools will teach the Divine Comedy, and not baseball statistics. And signalling theory does predict that there would be strong pressure to improve educational standards; it’s just that that pressure would be towards making sure that students actually have memorized the Divine Comedy, rather than making sure that they have actually increased their human capital.
Employers who focus on the signals your education emits seem to focus on where you studied rather than on what you studied. In other words, they seem to think that having a degree from Oxbridge correlates with being a good worker more strongly than memorizing the Divine Comedy does, or acquiring any other specific set of knowledge does. This belief (in the superior signalling value of an Oxbridge degree) seems to be quite weakly correlated with what Oxbridge and competing universities actually teach their students. It seems to me that universities’ reputations are quite sticky, so that even if a red-brick university tried to raise standards in order to raise the signalling value of their degree, they wouldn’t be able to beat the signalling value of an Oxbridge degree. If this is true, then employers’ focus on signalling implies a very weak pressure on educational standards. If employers are going to give your degree pretty much the same signalling value regardless of the content of your course, then universities’ will not be incentivized to improve or even maintain educational standards.