By Bryan Caplan
Arnold Kling pointed me to Lester Therow‘s 1972 Public Interest piece on “Education and Economic Equality.” In Therow’s lingo, the “wage competition view” roughly equals the human capital model and the “job competition view” roughly equals the signaling model. It’s a mixed bag, but has some gems, especially:
There is, then, a need to be much more agnostic about the productivity impacts of education than public rhetoric would indicate to be our present inclination. In the wage competition view of education, additional education for someone with more education than I can never hurt my prospects. If anything, it must raise my potential earnings. From the job competition point of view, however, education may become a defensive necessity. As the supply of educated labor increases, individuals find that they must improve their educational level simply to defend their current income positions. If they don’t, others will, and they will find their current job no longer open to them. Education becomes a good investment, not because it would raise people’s incomes above what they would have been ff no one had increased his education, but rather because it raises their income above what it will be if others acquire an education and they do not. In effect, education becomes a defensive expenditure necessary to protect one’s “market share.” The larger the class of educated labor and the more rapidly it grows, the more such defensive expenditures become imperative. Interestingly, many students currently object to the defensive aspects of acquiring a college education. This complaint makes no sense from a wage competition point of view, but it makes good sense from a job competition point of view.
Simpler version: When someone with degree X hears that more people are getting degree (X+1), how does he usually react?
Reaction #1: “Great! The supply of the labor I buy is going up, and the supply of the labor I sell is going down.”
Reaction #2: “Noooo! It’s going to get harder to get hired or promoted unless I get degree (X+1) too.”