Today I’m celebrating Labor Day by continuing my exchange with Bill Dickens on the signaling model of education.  (Previous rounds here, here, and here).  What’s the Labor Day connection?  Simple: If I’m right, we’d be collectively better off if we spent fewer years in school and more years in the labor force.

One caveat: While I think that signaling is the main reason why our education system is so inefficient, it’s hardly the only reason.  In my view, our education system is a Frankenstein’s monster – a grab bag of inefficiencies hideously stitched together.  For example, K-12 schools’ tolerance for disruptive behavior seems highly inefficient, but neither the human capital nor the signaling model explains this dysfunction.  In my reply, I try to stay focused on signaling, though I do occasionally reply to Bill’s broader comments.

To keep the debate from getting stale, this is my last installment.  If Bill wants to reply, I’m happy to give him the last word.

Now onto the celebration.  My reply, point-by-point:

As I understand your position it is that private returns to
education mainly reflect inefficient signaling. That is that employers are
willing to pay for schooling not because students learn very much, but because
completing schooling signals some traits (intelligence, perseverance) that are
hard to observe otherwise.

Correct.  While I think that intelligence is fairly easy to observe (even in a regime where IQ tests are only semi-legal), conscientiousness and conformity are often hard to spot – especially when people have a strong incentive to fake them.  Even worse, low educational attainment relative to IQ is a strong signal of low conscientiousness and conformity.  So when employers interview a smart person with little education, they infer that the person is well below-average in other productive traits.

Further, you must believe that there is a more
efficient way to solve the problem of figuring out who is fit for what type of
job than running them through the educational gauntlet. I take it from your
reply you think less schooling and more work is the way to accomplish this.

Right.  Some signaling is socially productive because it improves the match between workers and jobs.  But it’s privately optimal for students to far exceed the social optimum. 

My preferred policy is simply to end government subsidies for education.  It might be even more efficient to go further and impose a Pigovian tax on education.  But since education is a mix of human capital creation and signaling, and government has already made a mess of things, I think the all-things-considered best approach is separation of school and state.  But someone could accept my views on signaling without going that far (or by going even further!).

…In addition, I believe that increased wages are only part
of the benefit of education to the individual (the private returns to
education) AND that there are social returns to education above the private
returns so that the total value of education to society exceeds the individual
returns and considerably exceeds the increase in wages we observe.

I agree that education has some positive externalities that partially balance out the negative externalities of signaling.  But I think that these positive externalities are overrated, and in any case stem from a tiny subset of coursework.  Positive political externalities of economic education?  I’ll buy that.  Positive political externalities of history?  Probably not – only a handful of people can competently reason from historical examples to current issues.  Political externalities of English or sociology?  If anything, they’re negative.

There is a third position, and I will claim it as my fall
back position. That most of the return to education is due to it signaling
desirable characteristics, but that there is no more efficient way to sort the
capable from the incapable…

Even on your fall-back position, don’t government subsidies for education make a bad situation worse?

In your reply you stated that education’s value added was
maybe 20% of the private returns to education. Does this mean that you think
fully 80% of the value of time and other resources spent on education are
wasted? Wow! Given how much we spend on education and how much time we spend in
school that is an enormous inefficiency! 
How is that possible?

Suppose you told me that only 20% of oil production was socially efficient, because the other 80% had large negative externalities – pollution, global warming, whatever.  Would “How is that possible?” be a reasonable reply?  I don’t think so.  In both cases, the point is that individuals and firms are advancing their own interests by ignoring the large negative side effects of their behavior.

In the case of the education system: Students advance their interests by looking good compared to other people in the job market, employers advance their interests by hiring smart, determined candidates, and schools advance their interests by making their students look good to employers.  If this leads to a world where schools design meaningless hoops, students jump through these hoops, and employers financially reward the winners, why should students, employers, or schools worry if it’s globally efficient?

The strongest argument for either of the two
positions I’m defending is that if there was a much more efficient way to do
whatever it is that education does, somewhere some society would have found it
and we would all be trying to copy them.

Before you enlightened me about the manifest inefficiencies of mass unemployment, I might have said the same thing!  Unless you’ve had a major change of heart, you too admit that individual self-interest plus human psychology creates some awfully inefficient outcomes.

Here in the US we’ve now had at least
50 to 100+  years of experience with mass
education and we haven’t been able to find a better way? (I say 50 to 100+
since universal grammar school has been around much longer than cheap large
scale higher education.)

At first glance, you’ve pointed out an important distinction between mass unemployment and signaling: mass unemployment doesn’t last decades.  I’d reply, though, that the key inefficiency – nominal wage rigidity – has persisted for not just decades, but centuries. 

In any case, then kind of innovation you get depends on incentives.  If pollution is free, there’s not much reason to think that innovation will solve the problem over any time horizon.  The same goes for signaling.  Students, firms, and schools get better at “playing the game,” not reaching a global optimum.

…Bryan, I hope you appreciate the irony here.
In our first public debate you are taking the side of widespread market failure
while I’m defending the ability of private ingenuity to work its way around
whatever problems the world throws in its way – the reverse of our usual roles.
I must say I’m enjoying being in this position because I normally grant that it
is the person arguing against efficiency who has the burden of proof.

It’s not an ideologically comfortable position for me.  But first-hand observation of the education industry, plus the psychological evidence against the empirical importance of “learning how to learn,” “training the mind,” etc., leave me little choice.  On a deeper level, admittedly, I am taking a characteristically Caplanian position: Government is making a genuine market failure worse because voters systematically overestimate the social benefits of education.

Let me take a guess how you would shoulder this burden based
on your response. Misguided government policies of subsidizing the sort of
education that teachers like locks in a major competitive edge for the public
education model. It’s not worthwhile for businesses to set up their own
screening mechanisms as long as the state is doing it for them and private
education has to mimic public education for credibility. Further, to the extent
that education is supported by charitable giving there still is little
accountability for outcomes.

I agree that government subsidies are an important part of the problem.  I’d like to be able to say that government is the whole problem.  But that just seems false.  Long before government subsidized higher education significantly, schools designed meaningless hoops, students jumped through them, and employers rewarded them for it.

Finally, any attempt by the private sector to find
a more efficient way of screening would be subject to adverse selection (you
said only losers would apply to your “quickie tech”), and besides, anyone who
went to an alternative school would be branded a weirdo.  I’m not buying it.

First off, if inefficiency is of the magnitude I believe you
are claiming then public support of the system wouldn’t be near enough to keep
it in place.

Agreed.  Government makes a bad situation worse, but it’s not the root of the whole evil.

So why doesn’t the private sector respond? You seemed to
imply that any attempt to do the screening cheaper would be subject to adverse
selection (your indictment of Quickie Tech) and would also have reputation
problems (graduates are weirdoes). I don’t think it takes much imagination to
get around the first problem and I don’t think the second problem is real.

To begin with, you don’t have to jump all the way to the
most efficient possible system in one leap. A small innovation that gives you a
slight advantage should be enough to allow a private institution to prosper and
shouldn’t cause a big adverse selection problem as so many factors go into
college choice.

This sounds very reasonable.  But reread your last sentence carefully.  If the advantage is only “slight,” then a slight adverse selection problem is probably all it takes to cancel out the benefit.  So there’s not much reason to be optimistic about stepwise progress to a low-signaling world.


And if experimental schools are ruled out because they
signal that the graduates are weirdoes you would hardly know it from the very
large number of experimental schools of all sorts – private and state funded –
at all levels of education… BTW, I’m one of those weirdoes – I got my BA at Bard College
at a time when it was known as an “alternative” college. For every person who
thinks you are weird for going to an alternative school there is someone who
thinks you are interesting.

“Experimental” covers a wide range of experiments.  Bard College is experimental in some sense, but it still makes students jump through a bunch of meaningless hoops.  If you can handle four years of that, you’ll probably make a good worker.  But experimental schools where you simply cut out hoops so their students can graduate sooner?  Employers might find their graduates “interesting,” but they’re more likely to dismiss them as slackers who took the easy way out.

But why not an instant jump to a much more efficient format?
Instead of “Quickie Tech” why not “Elite Accelerated Tech.”  “We teach you all the material in half the
time. We hold our students to the highest standards, but if you’ve got what it
takes you can make it through and demonstrate to the world that you are one of
the elite.” Since you think that most schools are way too soft on students
shouldn’t this work?

Actually, most colleges already offer this.  You’re free to take heavy courseloads in order to finish your education more quickly.  It’s a strong signal, too.  Unfortunately, you have to be super smart and determined to send it.

…Some of the very highest reputation private
schools are known for being very forgiving of less than optimal performance and
aren’t very demanding in terms of the amount of work they expect students to do.
That is a terrible way to run a screening system, but exactly how you want to
run an education system! As you know, Bryan, I moonlighted as a flight
instructor for several years. People most certainly don’t know how to fly
airplanes when they start flight training, but a few months to a year later
they do. If you work for an airline you’re going to be bounced out of service
if you get an airplane into an unusual attitude. But if you do it to your
flight instructor during training you will likely get a laugh and be told to
try again (maybe with a little less left rudder). When you are teaching people
you give them a lot of slack and then give them feedback on how well they are
doing so that they can find out what works for them.

You’re conflating two very different kinds of forgiveness.  Forgiveness toward students who take risks with big upsides and small downsides often leads to valuable results.  But forgiveness toward students who are disruptive or lazy doesn’t.  (This point is largely orthogonal to signaling, but since you raised it and it’s interesting, I wanted to respond).

As you know from my
original post, what I think people are mainly learning in high school and
college is work habits that allow them to function well in the sorts of jobs
they will get. I think schools are more forgiving of less than optimal
performance than work because they are teaching these characteristics. If they
were sorting to the degree that you believe they are then they would be more

Why?  Schools let students send a wide range of signals because students have a wide range of signals to send.  Many students have the brains and determination to finish an English degree, but not a math degree.  Schools serve both, and employers reward them accordingly.

Are they effective? Robin Hanson has noted how businesses in countries with less well developed school systems
complain about how undisciplined the workers are. This is often cited as one of
the major reasons why labor in the developing world doesn’t attract more
investment despite wages that are a fraction of the developed world…

These countries have lots of other problems, too, Bill – poverty, pre-existing culture, etc.  Why assume that the school system is the weak link?

why was the business community so interested in establishing the system of
public education in the form it was set up (see Bowles and Gintis, Schooling in Capitalist America p36-44)?

When firms lobby for detailed policies that affect their specific industries, I’ll accept the presumption that their means are well-tailored to their ends.  When firms lobby for broad social policy, though, there’s no such presumption.  Policies that are good for business in general are a public good for any particular business.  So I figure the “business community” was largely engaged in public relations – trying to look good by voicing support for whatever people at the time saw as “right-thinking” school reform.


Your main indictment of my argument that education produces
value was that work could better teach the sorts of skills that I was claiming
schools taught. Back at you brother! The same could be said for screening. I would
argue that screening could be done at much less cost, relative to education, in
businesses... If the problem is signaling – getting
people to reveal their true type – then businesses could offer deals where
people start off receiving very low wages (or even paying the business tuition
for training) while demonstrating their ability… Your argument that innovation is
impossible because of adverse selection is untenable in the face of massive
amounts of innovation in the educational system everywhere.

I never said that all educational innovation generates adverse selection.  You get adverse selection when you try to make education easier – when you reduce the number and difficulty of meaningless hoops students have to jump through.   Co-ed dorms and high-tech classrooms don’t attract losers.  Cutting math and foreign language requirements do.  And as I said earlier, it only takes a slight adverse selection problem to cancel the benefits of a slightly more efficient curriculum.

By the way, if you believe that offering to work for free during a trial period is such a great way to overcome signaling, why don’t you think it’s a great way to overcome labor market rigidities?

…I don’t have the time right now, but one of us
should go through the courses taken by students in different majors and figure
what fraction directly relevant to their work.

Yes, I’ve been interested in interviewing people about their transcripts for a few years.  Know of a massive grant I could get with minimal effort? 🙂

…Personally I would say
that close to 100% of the courses I took in college get used in my professional
work (the research, not the teaching part).

For my education, I wouldn’t go higher than 30%.  Your “100%” figure puzzles me greatly.  You told me that you used to believe in the signaling model.  If your first-hand experience didn’t deceive you, what did?

So Bryan, ready to do some back tracking? I think you’ve got
to at least admit that the educational system is a lot more efficient than you
originally claimed. Otherwise I think you have gotten yourself out on a limb
that won’t support the weight.

I’m standing my ground.  I’m happy to admit that I’ve got a 10 percentage-point standard error around my “80% signaling” estimate.  But a priori arguments about how easily market forces would undermine signaling don’t sway me.  I’ve spent too many years learning – and teaching – material that’s all-but-useless in the real world.