The Picoeconomics of Education
Economists who study education usually look at the effect of individuals’ education on individual income – the standard “microeconomic” approach. But economists who study education also look at the effect of countries‘ education on country income – the “macroeconomic” approach. This piece by Fabian Lange and Robert Topel carefully distinguishes between the “Micro-Mincerian” return to education – how much a one-year increase in individual education increases the income of the person who gets it – and the “Macro-Mincerian” return to education – how much a one-year increase in average national education increases the income of the country that gets it.
All this is well and good. But there’s an even deeper level of education to examine: What students actually study, learn and retain. I think of this as the “picoeconomic approach”* because it focuses on details too small for the “microeconomic approach” to see. The microeconomic approach tells us how much the market rewards education. But in the end, it doesn’t tell us why. To discover why education matters, we must descend to the picoeconomic level.
Key example: the main reason I’m think signaling is big deal has nothing to do with either Micro-Mincerian or Macro-Mincerian estimates of the return to education. The main reason I think signaling is a big deal is that (a) students study a ton of material that almost no job uses; (b) the Transfer of Learning literature shows that learning is highly specific – you don’t build general purpose mental muscles by learning Latin; (c) students quickly – and happily – forget most of what they learn, anyway. And yet employers amply reward education! The signaling model instantly looks like the best way to explain all the key facts.
You’d never extract any of these lessons from wage regressions. To reach them, you’ve got to actually peer inside the individual mind – or introspect on your own experience. Yet economists who study education habitually neglect not just these particular insights, but the very existence of a picoeconomic level. And that is why they fail to see education for what it is.
* I know that the term “picoeconomics” is already used to describe the study of self-control problems, motivation, and so on. But why not think of self-control problems as one picoeconomic topic, and mine as another? We can treat picoeconomics as a blanket term that covers everything too small for microeconomists to notice.