Russ Roberts

Caplan Postmortem

EconTalk Extra
by Russ Roberts
Continuing Conversation... Bry... Steven Teles on Kludgeocracy...

Here is my postmortem on the Caplan episode

Bryan is a great debater and reasoner. Is he right on this issue? I don't know but he's provocative. I'd like to talk to someone on the other side who interprets the data differently. It's a topic I hope to come back to.

Education is an easy topic to argue about partly because we've all gone to school and tend to think our experiences can help us understand what it accomplishes. But it's also possible that our experiences fool us. Just because I can't remember one moment from my 7th grade English class does not mean it had no impact. And the many moments I remember from my 8th grade class with Miss Kineen at Muzzey Junior High may still not capture the full effect that class had on me.

I don't know if I mentioned it or emphasized it in the discussion, but financial return is not the only purpose of schooling. Wish we had discussed that in more detail.

The other point I wish I'd made is that the 83% number appears to be the raw premium of college education over high school education. The way Bryan describes it, it seems just to be a ratio of two averages. If that's true it does not correct for age, sex, experience or anything else. I'll try to find out from Bryan if I have that right.

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COMMENTS (15 to date)
Shawn Barnhart writes:
I don't know if I mentioned it or emphasized it in the discussion, but financial return is not the only purpose of schooling. Wish we had discussed that in more detail.

At one time in the past I think there was were more formalized purposes to college, such as introduction to a more formal social environment (think of fraternity and sororities and the formal social experiences they provided, pre-Animal House), obtaining a more worldly cultural experience in past eras when people lived in more isolated communities or even finding potential spouses of a desirable socioeconomic class outside the pool available in your community.

The people who were in college in such an era likely weren't there for the signaling value or the human capital value, their existing social standing and the lack of technical sophistication of the economy meant that their economic future wasn't really dependent on a degree at all.

Most of these benefits seem to have gone by the wayside -- even most fraternity and sorority life has become much less formal as or societies have, cheap travel, the Internet, mass communication and urbanization has enabled broader cultural exposure to most people before they "go away" to college and the "MRS" degree is pretty much a thing of the past.

While it would be nice to believe that somebody out there is getting an education for an idealistic purpose of broadening their horizons, I doubt many people, even the wealthy, look at a $40,000+ college education with at kind of idealism.

Brendan writes:

Hi Russ,

Well Bryan's got the evidence right but the interpretation is flawed it is a good thing that people go to college cause of competition to stand out of the every increasing population of the college educated you need more education credentials like maybe two masters instead of one or instead of two PhDs what about 3.

Matthew Kay writes:

I have no reason to think the statistics are wrong, but at the same time I have never seen or experienced a situation where a resume will trump a personal reference. Who you know is a more powerful signal than a resume and education. Granted, a person with a college education is more likely to have friends with equal education, in the field, and people are unlikely to make a recommendation for someone they felt was not qualified. I think the main benefit of college was not the degree, it was that first internship and contact development. The internship is where the first professional contacts are made, the contacts that will lead to the first job.

Steve Hemingway writes:

I think that the benefits of a college education go beyond accumulating human capital and signalling. I remember when one of my sons was considering studying in the USA one of the other parents said basically: "You'd be mad to let him study there because he'll lose all the networking opportunities he'll acquire if he studies at Oxford or Cambridge."

Network effects (in the sense of meeting people who move in the right circles) are clearly very important in UK society. With five members of the cabinet from the same school and virtually 100% of the government and opposition front-bench teams having studied at one of the same two universities, it's hard to believe that something is going on that's beyond the accumulation of skills and competences. Of course politics may be different from 'real work' but the top professions are dominated by people who went to a relatively small number of educational establishments.

Note that when I talk about 'school' I mean a place where you receive primary or secondary education: nothing to do with university.

Brad Hutchings writes:

I wonder how self-motivation plays into our biases. I always did very well in school grades-wise, but am pretty sure I learned more on my own than within the bounds of any organized course through the first year of grad school. But I also know that most kids in school and adults in workplaces need to be herded in front of structured and organized learning opportunities for any learning to have a chance of happening.

I'd start by looking for some parallel proxy like entrepreneurship, telecommuting, free-agent work arrangements, etc. Even in 2014, friends and family in traditional go-to-work environments look at me as a complete enigma.

I have a feeling that instead of human capital and signaling covering X and 100 - X percent of the whole pie of education value, each dominates some section of the pie of people. I'd estimate X in the 15% - 30% range. So human capital might be the explanation for the non-self-motivated and signaling for the self-motivated.

emerich writes:

The more I hear and read about modern U.S. colleges from my own children and other sources, the more convinced I am that the negative externalities are large. One of my sons went to an Ivy and he says he doesn't use anything he learned in school in his job (as a currency trader). My daughter is doing well as a sales AE at a good firm and says the same thing. But one thing these kids are subject to in these schools, unrelentingly, is politically correct (i.e., left-wing) propaganda about race, class, gender, etc. That induces either cynicism, if they're lucky, or worse, delusional thinking about politics, economics, society, and science. I'm not impressed by the non-financial returns from the typical U.S. college education.

JKB writes:

The impact of arbitrary mandated undergraduate degree requirements have on future earnings needs to be assesses. Lawyers, doctors, engineers make good money but have a cartel or government mandate for an undergraduate degree to even be allowed to do higher studies or work in the field. There may be legitimate purpose on this threshold, but it wasn't that long ago that an arbitrary undergraduate degree had to precede law or medical school or licensing as an engineer, even to pursue "graduate" studies.

We may see the signaling/competency, etc. debate enter the wider public with discussions about whether Scott Walker is "qualified" to run for President without finishing his degree. One area to pursue is just what the diploma would signal at this point with his career record?

I find this to be a very compelling viewpoint of a college degree from a professor writing in 1923:

The idea is, of course, that men are successful because they have gone to college. No idea was ever more absurd. No man is successful because he has managed to pass a certain number of courses and has received a sheepskin which tells the world in Latin, that neither the world nor the graduate can read, that he has successfully completed the work required. If the man is successful, it is because he has the qualities for success in him; the college "education" has merely, speaking in terms' of horticulture, forced those qualities and given him certain intellectual tools with which to work-tools which he could have got without going to college, but not nearly so quickly. So far as anything practical is concerned, a college is simply an intellectual hothouse. For four years the mind of the undergraduate is put "under glass," and a very warm and constant sunshine is poured down upon it. The result is, of course, that his mind blooms earlier than it would in the much cooler intellectual atmosphere of the business world.

A man learns more about business in the first six months after his graduation than he does in his whole four years of college. But-and here is the "practical" result of his college work-he learns far more in those six months than if he had not gone to college. He has been trained to learn, and that, to all intents and purposes, is all the training he has received. To say that he has been trained to think is to say essentially that he has been trained to learn, but remember that it is impossible to teach a man to think. The power to think must be inherently his. All that the teacher can do is help him learn to order his thoughts-such as they are.

Marks, Percy, "Under Glass", Scribner's Magazine Vol 73, 1923, p 47

JKB writes:

I came across this report from the Census the other day. It is a first of its kind investigation into alternative credentials. 25% of the population have them and for those with less than a bachelor's there is an earnings premium over those of similar education.

These alternative credentials include professional certifications, licenses and educational certificates. The fields of these professional certifications and licenses were wide-ranging and include business/finance management, nursing, education, cosmetology and culinary arts, among others.

The report shows that, in general, these alternative credentials provide a path to higher earnings. Among full-time workers, the median monthly earnings for someone with a professional certification or license only was $4,167, compared with $3,433 for one with an educational certificate only; $3,920 for those with both types of credentials; and $3,110 for people without any alternative credential.
"For people with at least a bachelor's degree, earnings didn't really differ between those with an alternative educational credential and those without," said report co-author Robert Kominski, assistant chief for social characteristics at the Census Bureau. "But at lower levels of regular education, there is routinely an earnings premium for a professional certification or license, or an educational certificate."
Professional certification or license holders earned more than those without an alternative credential at each level of education below a bachelor's. Among people with some college but no degree or less education, educational certificate holders earned more than people without an alternative credential.
Elliott writes:

One question that crossed my mind as I listened to this podcast is whether or not there is an earnings premium associated with graduating with a higher GPA within a given major. If people who graduate with higher GPAs tend to earn more than people who graduate with lower GPAs, this would seem to support the human captial theory, but if no such premium exists then it would seem to support the signaling theory. I'm sure that partisans of both theories could probably come up with ways to incorporate the existence or non-existence of a GPA premium into their favored explanation, but it would be interesting to know nevertheless.

Daniel Barkalow writes:

It does seem to me that, if there is an increase in human capital from education, it's likely to be in things that are hard for an employer to evaluate, and even harder for an employee to charge for. So it may well be that an college education makes you a better person, but that the reasons to want to be a better person and to have better people as citizens don't affect their income.

Clay Stallworth, MD writes:

Perhaps I missed a comment in the podcast or the ensuing discussion, so this may be redundant. The increasing premium of a college diploma vs. a high school diploma is very interesting, but I believe it's very possible that it can be partially explained by the decreasing value added by the high school diploma rather than the increasing value added by the college diploma. Take a look at the list of things a high school graduate was expected to know from decades ago, and though they didn't typically know calculus, they could usually write clearly (and correctly) and perform accurate practical mathematical calculations. A huge number of current high school graduates need remediation at the college level for things that 8th graders knew decades ago.

Shawn Barnhart writes:
Elliott writes: One question that crossed my mind as I listened to this podcast is whether or not there is an earnings premium associated with graduating with a higher GPA within a given major.

An interesting question, but I'm not sure you wouldn't end up lost in regression-land as you would have to control for what institution they graduated from since that in and of itself is a major component of signaling. A 3.0 student from Harvard probably still has a stronger signal than a 4.0 student from Bemidji State. There would also be a lot of questions about comparing GPAs between institutions and even between majors in the same institution -- does a 4.0 in Economics outrank a 3.5 in Organic Chemistry?

Hugh writes:

I too think the 83% figure needs to be further investigated. It might be more useful to look at information on the median wages of college graduates, as opposed to the mean (that I believe was used).

I also wonder if non-earners, or people who spent long periods unemployed, were properly excluded from the non-graduate earnings data.

Bryan certainly seems to have all the facts at his fingertips, and argues very convincingly.

Elliott writes:
Shawn Barnhart writes: An interesting question, but I'm not sure you wouldn't end up lost in regression-land as you would have to control for what institution they graduated from since that in and of itself is a major component of signaling.

Yes, this issue crossed my mind as well. But I think it would be possible to measure this fairly well by looking at data from large institutions like midwestern state university systems. You could even probably compare universities with nearly identical rankings without effecting the analysis too much.

Of course, there are other problems associated with this. The University of Minnesota and the University of Wisconsin may have similar overall undergraduate rankings, but perhaps one of them has a much more highly regarded chemical engineering program which would presumably skew earnings upward for grads of that program compared to the other one. When you start adding up these small differences, it could result in big discrepancies.

On a personal note, this brings an interesting anecdote that a friend of mine once told me. His sister attended a big Midwestern university and studied biology (if memory serves correct). She graduated but did not have an especially stellar GPA. She applied for a job at a well-known manufacturer of medical electronics, and according to my friend they did not care about her GPA, only whether she graduated. It sounds like they're partial to the signaling theory!

Daniel writes:

Hi Ross
Bryan does make convincing points. I think that the best person to counter Bryan would be Ronald Dore, the wrote a book called "The Diploma Disease: Education, qualification and development" . It is worth looking into as well.

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