Continuing Conversation... Bryan Caplan on College, Signaling, and Human Capital

EconTalk Extra
by Amy Willis
Bryan Caplan on College, Signa... Caplan Postmortem...

In this week's episode, Roberts talks with EconLog blogger Bryan Caplan about higher education. In the spirit of continuing conversation, here are some things to consider. As always, we love to hear from you!

Questions below the fold:

Check Your Knowledge:

1. What is the earning premium to college relative to high school, and how has it changed over time? What "psychological changes in the economy" have accounted for this change, according to Caplan?

2. In discussing the college premium, Roberts points out that the heterogeneity of the variables involved makes this figure problematic. Yet he still maintains that this figure can tell us something. What can it tell us, and what can we deduce from it?

3. Caplan analogizes the return to education with both marriage and bank loans. How does each compare to education? What other analogies might you suggest?

Going Deeper:

4. Caplan offers some suggestions for fruitful further research. In doing so, he poses the "puzzle" of why students are happy when their professor cancels class. How would someone who believes in the human capital model explain this puzzle? The signaling model? Which one do you find more convincing with this example?

5. Throughout the interview, Roberts and Caplan discuss labor economists' typical rejection of the signaling model. Roberts challenges Caplan as follows:

Here you have all this evidence that should have convinced all these labor economists. It hasn't. Either they have a terrible confirmation bias...Or you do. And the information is not quite as decisive as it appears to you.
What evidence does Caplan offer to buttress his point, and why do you think this hasn't been accepted by most labor economists? To what extent is their rejection justified? Who suffers more confirmation bias?

6. At the end of the interview, Caplan describes education as an "arms race." What does he mean by this? To what extent is there a social return to education? Do you agree that "too many people go to college?" Explain.

7. In your opinion, should colleges offer refunds? If so, under what circumstances, and what exactly would they be refunding? If not, why not?

Extra Credit:
8. Approximately halfway through the episode, Roberts argues that it may be possible to "get the best education in the world for free." This same notion was discussed in a recent episode with John Cochrane on MOOCs. After listening to Cochrane's MOOC experience, would you classify Cochrane as an adherent of the human capital or signaling model of education? Explain.

Comments and Sharing

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COMMENTS (9 to date)
Saam writes:

Hi Russ

Very interesting talk. I am an undergrad in Engineering and an MBA, and have a bias towards signaling. I've seen that in countless work interviews and also counseled many students for business school admissions.

Couple of comments:
1 What about the theory where where employers believe in signaling, independent of whether students actually receive human capital injection? Wouldn't that be a plausible theory to check out? Quite simple experiment to run -- send out a hundred resumes, just change the name of the graduating university and see the response.
2 Another example of signaling in action: In India, there are multiple ways to finance your education. Quite often, parents pay for their kids. Actual tuition is not that high for undergraduation, but admission (called capitation) fees can be a big factor. But if you're self-financing, and need to take an education loan -- you can approach a government bank. For select colleges, they will offer a bank loan at ~10-14%/annum (real inflation is ~8-10%). Guess what they keep as collateral till the loan is paid out? Yes, you guessed it -- the original degree certificate that you received.

Anyways, thanks for EconTalk. It's been great to be in touch with economics, a subject I love but don't get enough serious discussion of when it interacts with the real world.

Patrick Stanford writes:

I listen to Econtalk during my daily walks. I am not an economist but I do enjoy your podcast.

In my humble opinion, I think that Dr. Caplan should expand his comparison. The choice is more than leaving high school and going to work or going to college. Many people are not ready to attend college simply because of their maturity. I found that to be my situation. I attended college immediately after high school and promptly flunked out. I was fortunate enough to be drafted and spent 2 years in the U.S. Army with no regrets. Afterward my college experience was excellent. Dr. Caplan might consider looking at the graduation rates of a sub-group of similarly situated people.

Another group he might want include in his comparison is those who choose not to go to college but choose to enter various technical schools. Some of those programs lead to very successful careers.

Thank you for Econtalk.

Doug Coate writes:

Cancelling class is a teaching moment if done correctly. It demonstrates Pareto efficiency.

Rick Groves writes:

Very interesting discussion. I'm actually quite sympathetic to the large point regarding the signal value of the college degree (especially as a liberal arts major on his way to graduate school for an analytics masters). But I think the conversation at least missed a huge portion of what the signal actually includes. Beyond the skills, a college degree signals not just conformism or perseverance. It signals wealth of many kinds. It signals the environment the person came from (parental income & education). It signals social skills. It signals an ability to work "the system", which includes but goes much beyond conformism. It signals a stability of personal life circumstances.

Given this, I would have liked to hear more discussion of the role of family/personal income and social capital as it relates to college completion. A few times Mr. Caplan casually talked about students choosing to leave college because it was too difficult academically. I'm sure that this does happen often. However, it strikes me as the explanation that a professor would be particularly attuned to, rather than one highlighted because of its prevalence in the literature. The academic preparedness issue is surely legitimate, but most of the work I've seen suggests it's not the largest hurdle.

The conversation seemed quite tilted to the experience of middle class people like me, who attended a good state school (UW-Madison) with some support from his parents, but who worked part-time as well. This is the easy case. While students drop out due to academic challenge, many, many students drop out because they cannot afford to continue, literally. For many, many students, particularly those on the margins, their parents aren't paying that $5,000 or $10,000. And even if tuition were free, they still have the cost of room & board, fees, books, transportation, etc. The costs of a post-secondary education go way beyond tuition. And then you have the reality that many students had been or are expected to also support their family financially, not just their own kids necessarily, but mom & dad, grandma & grandpa, and/or their siblings. And let's say that they were able to pay for school while working 40+ hours a week; that puts the academic challenge in a different light.

Attending school full time and working to pay for it is an increasingly difficult proposition, as The Atlantic recently documented:

But what about those subsidies, that $1T of public money? Financial aid was discussed without any consideration giving to the real world difficulty of actually securing it, assuming those in need are even aware that it is out there. Financial aid is gated behind complex bureaucratic systems and, unfortunately, those most in need of it are often those with the least awareness of its existence and with the least amount of social capital needed to know how to work through those systems. You get the idea.

All told, a college degree is an extremely rich signal compared to any other single signal I can imagine a person putting on his or her resume' early in his or her career. However, I also wouldn't denigrate the true value of the college experience. While it's easy for a pair of professors to bemoan the lazy college student playing frisbee all afternoon between classes about art history, the college experience does either help students develop soft skills that are vital to success in the workplace and filter out those who fail do develop them. None of that is to say that it should be subsidized, but I think it would be a big mistake to assume that "skills" are necessarily a function of the technical knowledge gained in a specific degree program.

Amy Willis writes:

@Patrick Stanford You raise a good point about people who choose to leave college for different reasons than those discussed. It also makes me wonder if the the trend of an increasing premium to college will continue; there are definitely some who argue otherwise. For example, have you followed the Thiel Fellowship? Or the new Praxis?

Bogwood writes:

Would this be a helpful way to look at the social costs of education: As currently defined education lowers the EROEI(energy return on energy invested) and therefore lowers the energy available to the rest of society. This pushes closer to the edge of the energy cliff.

It is part of the argument about boundaries on EROEI. If each drilling hand has to pay for one dose of college the cost of the well goes up and the energy available to society goes down. Repeat at every step in the supply chain,lower EROEI lower GDP.

Then send some of your "best" from Princeton to Wall Street to finance more wells...

BeckyC writes:

While it’s conceptually useful to think about a human capital model separately from a signaling model, some fields of study really are different.

If you are taking a math class, if your professor is an excellent lecturer and she cancels one class, it matters to you. The material is sequential; it builds relentlessly on itself; it is going to be more difficult for you to learn the material by yourself even with a well-written textbook. And the professor can’t avoid testing your knowledge of that topic on the final exam. The topic is likely to support learning in other math classes which support learning in other science classes. Which all supports using a human capital model for the STEM majors. Students have reason to be worried when class is canceled.

The whole point of Khan Academy is that a human being talks you through a topic… and which topics did Khan start with? Such modular learning with audiovisual aids will continue to improve beyond imagining, but it is still based on a gifted professor with a piece of chalk and a blackboard, teaching math.

If you are taking a class in history, even if your professor is an excellent lecturer and he cancels one class, are you at a loss? You know you can read the chapter on your own. He knows he can go light on that chapter for the final exam, even though history is, well, sequential. I think this supports a signaling model for the “verbal” majors. How much value does the professor add to material that is already, well, verbal?

When Bryan gave the example of how to get a free education, I thought he was going to say “go to the Library” rather than “go to Princeton”.

Technically, you can teach yourself from printed materials. The most gifted mathematicians do teach themselves, and conversations with professors are simply frosting on the cake. But the rest of us… are acquiring the use of a intellectual tool. We need help building our human capital with every interaction with the professor, whether it’s an embodied voice in a classroom or a disembodied voice in an online module.

I would love to hear you guys tackle the problem of recent Pay It Forward proposals, in which everybody pays a percent of future earnings. Will STEM majors subsidize education for the verbal majors? Why, when STEM majors work a whole lot harder for their degrees?

Lee Jamison writes:

I wondered if the college premium was equally distributed between men and women, or if it might be greater at a given level of education for women.

Jorge writes:

About question number 4, the puzzle of why students are happy when a teacher cancels a class, it can be attributed to the fact that young students don't internalize the costs of a class. When we pay for a course and internalize the cost of it, we feel harmed by non-assiduous teachers, or even bad teachers. Therefore, the fact that students cheer about canceling a class is due to myopia, since they do not internalize the cost of their education, unlike adults who pay their own education.

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