Signaling of what, precisely?

post by VipulNaik · 2013-09-16T17:12:32.088Z · LW · GW · Legacy · 12 comments

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12 comments

It's a well-known fact that college graduates make more money than high school graduates who do not go to college, but the reason is not clear. Bryan Caplan offers a typology where he splits the gap between the income of college graduates and of high school graduates into three parts: human capital, ability bias, and signaling. Caplan also warns economists of education against conflating ability bias with signaling. The (human capital + signaling) total gives the "return on education" for a college degree -- the part that is causally due to getting a college degree. The (human capital) part alone gives the return on education through the channel of improved productivity, whereas the (signaling) part gives the return on education through the channel of being able to convince potential employers that they have higher productivity. The (ability bias) part can be thought of as selection bias for pre-existing ability: people who go on to graduate from college differ from people who do not go to college in terms of their pre-existing abilities (here "pre-existing" does not mean "innate" -- but rather it means what they had before starting college, or what they would have acquired through natural maturing even if they hadn't gone to college) and these people would likely have earned more (compared to the ones who didn't go to college) even if they had chosen not to go to college.

I want to look at the signaling channel more closely. A college degree does send a signal of some sort to potential employers, and stories of college dropouts who achieve great success notwithstanding, many employers, particularly for high-skilled occupations, prefer workers with college degrees even if the degree is not directly related to the work on the job. But why, precisely, does the employer value the degree more? I can categorize the possible explanations into three categories:

  1. Causally agnostic signaling: Employers are relying on either their own experience or on the conventional wisdom that people with college degrees are more productive employees than people without. They don't actually care whether this is due to pre-existing productivity or due to human capital acquired in college.
  2. Signaling of human capital acquisition: Employers believe that college students acquire valuable human capital from their college experience (whether it's their coursework or other aspects of the college experience). The college degree is a signal of this human capital acquisition. Note that this story has a weak hole, namely, first, that the human capital acquired in colleges is irrelevant for many jobs, and second, that if all one has to signal is human capital, it's easy to signal this by taking a relevant test or battery of tests, as this Wall Street Journal article noted. Note that, in so far as colleges do not provide valuable human capital to students, employers are treating the college degree as an important signal based on a mistaken belief, and at least in principle, the market should punish such beliefs.
  3. Signaling of pre-existing ability: Employers believe that people whoget through college have greater ability (intelligence, conscientiousness, conformism, etc.) than people who cannot or choose not to. Note that some of these abilities (such as intelligence and conscientiousness) can be signaled by taking tests. Others, such as conformism, are harder to signal directly, because to signal conformism, one has to signal it for a sufficiently lengthy period of time in the "usual" setting (namely, college), and therefore, status quo bias makes it hard to move away from the equilibrium of requiring college degrees. Note also that some of these "pre-existing abilities" may be acquired and honed in college (for instance, college may teach people better work discipline and make them more conformist). The reason I use "pre-existing ability" is that it's not the primary purpose of college to teach these skills, and it's unclear that colleges in general teach these skills to the majority of their students.

What do you think is the breakdown of signaling between (1), (2), and (3)? Any other thoughts about whether the question is well-conceived, and about alternative formulations of the question?

UPDATE: Lauren Rivera's article on how elite firms hire, which was discussed by Bryan Caplan in an EconLog blog post, is relevant.

12 comments

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comment by [deleted] · 2013-09-16T18:38:28.484Z · LW(p) · GW(p)

Question: When we are attempting to set all other things being equal except for a college degree, what is the stereotypical example of the other side (that does not have the college degree), and are there other reasons why that person may be doing poorly?

As an example, here are several potential situations running through my head:

Option 1:

Person A is 23 years old and has a highschool degree and no employment experience.

Person B is 23 years old and has a college degree and no employment experience.

Potential Employment Downside: In this case, Person A has a large resume gap.

Option 2:

Person A is 23 years old and has highschool degree and four years of employment at the same minimum wage job.

Person B is 23 years old and has a college degree and no employment experience.

Potential Employment Downside: Person A has received no promotions or raises during this time, which may show a lack of ambition/quality, although they would probably have a good chance of finding another minimum wage job. (But of course, that would keep their pay down)

Option 3:

Person A is 23 years old, has roughly four years of college, but for whatever reason, no degree (perhaps they switched schools, or some courses didn't transfer, or the person failed a few times.) and has no employment history.

Person B is 23 years old, has a college degree and has no employment history.

Potential Employment Downside: Person A seems to have less ability to follow through on a task then person B.

Option 4:

Person A is 19 years old, has a highschool degree and has no employment history.

Person B is 23 years old, has a college degree and has no employment history.

Potential Employment Downside: Person A is younger than Person B, and so is less likely to have a record of doing things independently.

Option 5:

Person A is 23 years old, has a highschool degree and has an employment history of four years and beginning at minimum wage and getting promoted to Assistant Manager at some place or another.

Person B is 23 years old, has a college degree and has no employment history.

Potential Employment Downside: Not really as clear, unless the degree was field relevant. (I.e. A computer science degree in a computer science job) I'd be pretty tempted to weight these equally if it was an off topic degree (An english degree in a computer science job)

Of these, I think Option 5 meshes well with my workplaces own hiring policy: I'm not in HR, but our policy manual does say that certain types of degrees are counted as equivalent to work experience of a certain type for certain positions.

But of people with no degrees who are looking for work, I don't think most of them are in that fifth group, which is why I think they might have separate reasons to be thought of poorly.

That being said, there may be a way to adjust for this that I'm just not thinking of or that I missed on review. Thoughts?

comment by [deleted] · 2013-09-16T23:51:29.068Z · LW(p) · GW(p)

(1) Going to college is in part a way to slow many people from entry to the job market. Not going to college is slowing to stopping. There are X-jobs and X+something people in the USA. College is in part a way to manage a too small job market. Students don't compete for jobs and graduate with debts such that they will take what they can get, not necessarily anything related to their degree.

(2) Since the 1971 Griggs vs Duke Power court decision, it is illegal to administer IQ tests in most job interviews. Education became a way to test for IQ by proxy. Combined with (1), this led to a feedback loop of more jobs asking for higher degrees to valve more applicants. What used to require a high school degree now required an AA, then a bachelors, then a maters, then a phd, not to filter the better people in but filter more of everyone out.

comment by James_Miller · 2013-09-16T17:34:52.254Z · LW(p) · GW(p)

Lots of the human capital students acquire in college relates to conscientiousness, i.e. learning to get up early for classes and turn in work on time even though, unlike with high school, your parents are not there to remind and pressure you.

Replies from: VipulNaik, Barry_Cotter
↑ comment by VipulNaik · 2013-09-16T19:23:21.748Z · LW(p) · GW(p)

Thanks. It's not clear though that college provides good training in conscientiousness. Admittedly, college is better training for conscientiousness than high school, or playing video games. But how does it compare to actual work (even unskilled work)? College students have a very flexible lifestyle in general, and the large prevalence of "party-through-college" types attests to the fact that one can get through college without working very hard if that's what one wishes to do.

Incidentally, the college premium has been rising at the same time as the amount of self-reported hours spent by students in college has been falling; see http://econlog.econlib.org/archives/2010/05/slacker_u.html

Replies from: mwengler
↑ comment by mwengler · 2013-09-17T21:06:42.588Z · LW(p) · GW(p)

Thanks. It's not clear though that college provides good training in conscientiousness.

It doesn't matter whether they are good at training conscientiousness, as long as they are good at marking it consistently with high grades. If I higher people with BS from Caltech and someone asks me whether I hire them because Caltech is good at training them or good at marking them, my answer is somewhere between "who cares" and "marking them, I don't care how they GOT to be good, just that the Caltech brand means they are good."

↑ comment by Barry_Cotter · 2013-09-17T11:53:21.906Z · LW(p) · GW(p)

I cannot be the only person who had no trouble getting up at five in the morning for money but found getting up at ten verging on impossible in college. No one cares what you do in college but if you don't show up for work you won't get paid. I'm not sure whether people like me support your argument or not. Maybe I'm just a workaholic with a high discount factor.

Replies from: James_Miller
↑ comment by James_Miller · 2013-09-17T14:36:16.971Z · LW(p) · GW(p)

No one cares what you do in college

Lots of employers care about grades. If you don't get As at my school, you don't get a job at an investment bank.

Replies from: Barry_Cotter
↑ comment by Barry_Cotter · 2013-09-17T22:06:33.998Z · LW(p) · GW(p)

My failure to write precisely strikes again. As long as your work process isn't illegal or against a relevant code of conduct no one cares how you got your grades. This does rather speak against what I wrote above. College is a four year adventure in less supervision than you will have at work.

comment by asparisi · 2013-09-17T18:51:01.257Z · LW(p) · GW(p)

One could judge the strength of these with a few empirical tests: such as for (2), comparing industries where it is clear that the skills learned in college (or in a particular major) are particularly relevant vs. industries where it is not as clear, and comparing the number of college grads w/ the relevant skill-signals vs. college grads w/o the relevant skill-signals vs. non-college grads; and for (3), looking to industries where signals of pre-existing ability in that industry do not conform to being in college and comparing their rate of hiring grads vs. non-grads. (This would presumably be jobs in sectors where some sort of loosely defined intellectual ability is not as important. These jobs are becoming more scarce due to automation, and in First World countries in particular, but the tests should still be possible.) (1) is harder to test, as it is agnostic, but trying to see how these intuitions conform to those in hiring positions could be informative. Other signals, as mentioned in the comments, probably have their own tests which can be run on them.

comment by seez · 2013-09-17T08:28:27.234Z · LW(p) · GW(p)

It's not all about professional skill. Going to college also signals that you are a part of a group that the employers are also a part of, that is, people who have had a "college experience". If you went to a similar college to them, they may feel a sense of familiarity, and thus comfort, thinking that they understand your experience. People like what they are familiar with (see the mere exposure effect.

Going to a certain college can signal that you are part of a certain group with a certain set of social skills and experiences that will help you fit in at the workplace. Doing certain college activities, such as joining a fraternity or sorority, may signal that you have a certain type of outlook on life that may or may not mesh with the work environment you are trying to join. In other words, going to college can add more useful data to potential employers. With such stiff competition, many employers may have the luxury of only picking applicants that fit best in the largst number of ways.

Additionally, going to college may be, at least in certain subcultures, a rite of passage. Those who fail to pass those rights may be considered to socially strange or undesirable to be a part of the organization. It may even actually help build social skills, and skills for professional interpersonal relationships (explanation 2). I wouldn't be hugely surprised if not going to college signaled a lack of mainstream social skills and respect for social niceties (explanation 1). No comment on whether this would be good or bad, but it could definitelt be off-putting in many workplaces.

comment by Ishaan · 2013-09-16T21:06:51.934Z · LW(p) · GW(p)

Edit: Those who are low in skill benefit more from college than those who are high in skill because there is a saturation point (if this were false we would all attend college multiple times). If "elite" firms are looking for the "elite" people who were already at the saturation point before coming to college, then for the population they want it is probably true that attribute (skill+intelligence) causes signal (degree).

Employers who do not need to hire the most "elite" employees need not behave this way.

As an aside - i don't think this is college specific. I think all signals - indeed, all causal lines - follow the format you just laid out. Suppose you wanted to Signal an Attribute. People will treat your signal as evidence for the attribute if they believe one of the following things:

Attribute influences Signal (preexisting skills enable college education, health enables large peacock feathers)

Signal influence Attribute - (college education increases skill, muscles cause strength)

Hidden factor influences Signal and Attribute. (intelligence enables both college education and skill acquisition, hormones increase both secondary sex characteristics and fertility)

I can't think of any other Signal-Attribute configuration.

comment by Brillyant · 2013-09-16T18:10:56.073Z · LW(p) · GW(p)

As you make the distinctions, I think 1 & 2 are a small factor when compared to 3.

Perhaps more than any of the 3, I think it is the good ole' CYA strategy by those who are responsible for making hires within an organization.

No one gets fired for hiring college grads.