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 earlierthis week. I am indeed working on a book defending the empiricalimportance of the signaling model of education. I’m happy to discuss myproject 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

subjects).

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

strongly supportive.

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.