Two Educational Heresies: Ability Bias vs. Signaling
Note that the two heresies are distinct.
You can believe that IQ matters quite a lot for earnings, but still think that education teaches nothing but bona fide job market skills. If this is so, then comparing the earnings of college graduates to high school graduates overstates the private benefit of education. Why? College graduates were smarter to begin with, so they would have earned more money than the typical high school graduate even if they didn’t go to college. Labor economists call this “ability bias.”
Similarly, you can believe that a lot of education is mere signaling, without thinking that IQ by itself puts money in your pocket. Suppose that the world is rigidly credentialist, so that no one will even consider a person without a degree for anything beyond a low-skilled job. If this is so, then comparing the earnings of college graduates to high school graduates overstates the social benefit of education. Why? Because part of the effect of education is just to make yourself look better compared to other people without increasing production.*
However, signaling by itself does not imply that the private benefit of education is any less than it seems to be: If you want to cash in on your brains, you’ve got to suffer through school first.
Last, note that while these two positions are logically distinct, they are compatible. You can consistently think that a lot of education is mere hoop-jumping to distinguish yourself from other people, AND that even if a high-IQ person refused to jump academic hoops, he’d still end up earning more money than a low-IQ person who was unable to jump academic hoops. And that is exactly my view.
Why should you care if either or both heresies is true? Prudence alone tells you to worry about ability bias, because it leads brainy people – like you, valued reader! – to overestimate your payoff from education.
In contrast, from the standpoint of prudence, it makes no difference whether education is signaling or not. What counts is that employers value it; why they value it makes no difference. However, whether education is signaling or not makes a great deal of difference from an ethical viewpoint: The world as a whole is better off if people have more productive skills, but not if people jump through more academic hoops.
As a professor, it’s admittedly contrary to my interest for people to understand either of my favorite educational heresies. If they understood ability bias, they’d be less likely to go to college; if they understood signaling, they’d be less likely to vote to subsidize college. But who listens to me, anyway?
* There is some social benefit of signaling, because it helps match abilities to jobs; but a lot of it is still socially wasteful because you could have matched people about as well if everyone got, say, half as much education.