A Brief Letter on Signaling
By Bryan Caplan
I heard a rumor that a famous economist was asking about my book in progress, The Case Against Education. So I sent him the following email:
I heard you were asking about me at the GMU dinner earlier
this week. I am indeed working on a book defending the empirical
importance of the signaling model of education. I’m happy to discuss my
project at length, but here’s the short version:
1. The vast majority of research on the return to education – including
IVs, RTCs, etc. – does not empirically distinguish between human capital
and signaling. The better papers explicitly admit this.
2. Students spend a lot of time learning subjects irrelevant to almost
all occupations (except, of course, teaching those very same irrelevant
3. Teachers often claim that they’re “teaching their students how to
think,” but this goes against a hundred years of educational
psychology’s Transfer of Learning literature.
4. When education researchers measure actual learning, it’s modest on
average, and often zero. And yet employers still pay a big premium to
e.g. college students who’ve learned little or nothing. The same goes
for the return to college quality. It doesn’t seem to improve learning,
but it substantially improves income.
5. There is a growing empirical literature using the El-SD (employer learning – statistical
discrimination) approach to measure the effect of
signaling. It usually finds moderate signaling, at least for
non-college grads. It looks like you have to finish college to quickly
get employers to reward you for measurable pre-existing skills.
6. The sheepskin literature finds large effects of merely finishing
degrees. They eventually fade out, but it takes 15-25 years. This
isn’t iron-clad evidence for signaling (what would be?), but it’s
My book will also argue that ability bias is a much bigger problem than
the David Card consensus will admit, and that the positive externalities
of education are overrated. So the social return to education turns out
to be quite low. In terms of policy implications, I’m going to argue
for large cuts in government spending on education, and a lot more
vocational education on the German model.