Caplan makes the case that education, and particularly higher education, does not teach students relevant facts and skills, but, instead, is merely a signal to employers about a latent set of characteristics that prospective employees already possess. The mystery is why it takes years of education and the capstone of a degree to reveal these skills to employers who are hiring. After all, the earnings premium for college grads is over seventy percent and even for high school graduates it is thirty percent higher than for dropouts. Caplan is adamant this does not primarily reflect added skills and knowledge acquired during these years of extra education. His answer is signaling. “Even if what a student learned in school is utterly useless, employers will happily pay extra if their scholastic achievement provides information about their productivity.” By successfully completing the rigors of high school and college a potential employee reveals preexisting traits that are not easy to tease out by any other means.
Prospective employers are using “statistical discrimination”: “true-on-average stereotypes to save time and money.” Education reveals more than an IQ test or SAT score alone. Furthermore, requiring IQ tests for employment has been deemed discriminatory and, therefore, illegal by American courts. In any case, “education signals not just intelligence, but conscientiousness- the student’s discipline, work ethic, commitment to quality, and so forth…. Education also signals conformity- the worker’s grasp of and submission to social expectations.” That is because “in our society, educational achievement is social expectation.” It is a bit of a Catch-22, but as long as the prevailing culture stresses the importance of a college degree those who want to appear most employable will strive to get that societal marker. Agreeing with societal norms and not rocking the boat are as important to today’s employer as any other skill. In fact, it is the package of intelligence, conscientiousness, and conformity whose components are equally important. A weakness is any one aspect of this trifecta suggests some sort of deviance from the socially acceptable norms even if more than compensated in the other two fields.
Why does education have to take so long if it is just trying to tease out preexisting traits? Tyler Cowen suggests, “the signal must be costly and grueling, otherwise it fails to sort out the best job candidates.” Caplan adds, “since easy-to-fake traits like conscientiousness and conformity are valuable, education has to take years. Signaling is a war of attrition.” Caplan does not dispute that there is some additional learning and human capital growth that takes place in college. He just posits that the mix skews predominantly towards signaling. He asks why so few students take advantage of sitting in on classes for free at elite universities. Anyone could get a free Ivy league education by simply sitting in the back of the lecture hall or asking the professor to audit their classes, except in the end they would not receive a diploma for their efforts, of course. Caplan also solves the mystery of why college students tend to be ecstatic when a professor cancels class. It is not just their high time preference. “When you skip class, your relative performance suffers. When your teacher cancels class, everyone learns less, leaving your relative performance unimpaired.” This does not make sense if the goal of college was to build human capital, but makes perfect sense from a signaling model.
Caplan goes on to dispel some of the human capital model myths about education. He measures and gives statistics for “fade out”, the fact that humans poorly retain facts and skills that they do not use regularly. He dispels the myth of transfer learning- most students cannot easily transfer skills between similar problem scenarios, especially if there is a time delay, any sort of distraction in between tasks, different teachers asking similar questions, and, especially, if a classroom problem is applied to the real world. He also refutes the idea of “learning to learn.” In fact, students learn specific facts better than general concepts and strategies (albeit still poorly). He posits, “when someone insists their product has big, hard-to-see benefits, you should be dubious by default- especially when the easy-to-see benefits are small.” Finally, Caplan discusses the sheepskin effect- that graduation pays so much more than any other normal year of education. “High school graduation has a big spike: twelfth grade pays more than grades 9, 10, and 11 combined. In percentage terms, the average study finds graduation year is worth 3.4 regular years. College graduation has a huge spike: senior year of college pays over twice as much as freshman, sophomore, and junior years combined. In percentage terms, the average study finds graduation year is worth 6.7 regular years.”
Caplan’s book is so persuasive because of the plethora of charts, tables, and graphs he employs to back up his assertions. He also discusses in detail such issues as college choice, major/career selection, completion probability, ability bias, government’s role, malemployment, licensing, employer learning, vocational learning, assortive mating, and education spending.
His book is a strong rebuke to those who think that higher education serves to build human capital. He does not dispute that it does build some, but questions how cost effective the current educational system is and whether a college education is even an appropriate goal for most students in society, as opposed to a select few. The mix between human capital and signaling is critically important for policy discussions. “If human capital is the truth, the whole truth, and nothing but the truth, education is a path to individual and national prosperity: education makes the pie bigger, so every worker can enjoy a bigger slice…. According to the pure signaling model, education raises income by making you look more productive. A worker gets more education; their productivity stays the same, but their income goes up. A nation gets more education; its productivity and income stay the same.” Of course the truth is somewhere in between these two poles. “At the global level, a typical year of personal education seems to raise personal income by 8-12%. A typical year of national education, in contrast, seems to raise national income by only 1-3%.” Caplan roughly estimates the mix at 20% human capital and 80% signaling, but is willing to quibble on the details as long as we admit that education is predominantly signaling. He suggests moving towards a world of credential deflation that, he posits, will not have the effect of actually deskilling the American worker.
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