1. Tyler Cowen responds on signaling.  He saved his best argument, though, for this morning’s conversation in his office.  Are we really to believe, he asked me, that signaling is the one force that vitiates the rule that everyone earns their marginal product?  My response: Signaling is just a special case of a broader force: statistical discrimination.  In statistical discrimination models, people earn the average marginal product of people who superficially resemble them.  If you think that statistical discrimination often has lasting effects, you should have no fundamental objection to the signaling model.  (And if you think that taste-based discrimination often has lasting effects, you should be even more open-minded!)

2. Arnold prefers credentialism to signaling.  (We’ve debated this before; see here, here, and here for starters).  I’m happy to admit that government pay grades and licensing are part of the reason why seemingly useless studies pay off in the labor market.  But private employers of workers in unlicensed occupations still hand out interviews and jobs partly on the basis of your grades in Ancient Philosophy and European History, too.

3. My primary complaint about Tyler here is that he falsely insists that the returns to education literature is relevant to signaling.  But I’ve got a secondary complaint with this statement:

What’s striking about the work surveyed by Card
is how many different methods are used and how consistent their results
are.  You can knock down any one of them (“are identical twins really
identical?, etc.), but at the end of the day which are the pieces —
using natural or field experiments — standing on the other side of the

None of these methods find much evidence of ability bias, true enough.  But there is one plausible empirical approach that finds large ability bias.  Namely: Directly measure ability, then re-estimate the return to education controlling for ability.  The most famous example, of course, is estimating the return to education controlling for IQ, which reduces naive estimates of the return to education by about 40%. 

Now tell me.  Which is a more compelling test of ability bias: using compulsory schooling as an instrumental variable, or statistically comparing people with the same measured ability and different amounts of schooling?

4. David Leonhardt reignited this debate by remarking that “a bachelor’s degree pays off for jobs that don’t require one: secretaries, plumbers and cashiers.”  Observation: Replace the word require with the word use – and this supposedly pro-education factoid becomes yet another reason to believe in ability bias and/or signaling.

P.S. I couldn’t resist searching David Card’s 63-page article on “The Causal Effect of Earnings on Education” for “signaling/signalling.”  There is only one appearance in the entire body of an article that Tyler treats as a decisive refutation of the signaling model.  And Card explicitly states that his approach makes no distinction between education that causally raises wages by increasing productivity and education that causally raises wages via signaling.  Footnote 14:

The market opportunity locus y(S) may reflect productivity effects of higher education, and/or other forces such as signalling.