Wednesday, April 29, 2015

A follow-up on college and signaling



The other day I wrote a Bloomberg post about the fad of describing all communication and information extraction as "signaling" even when a Spence-style signaling model doesn't apply.

Some people have been telling me that this Garett Jones tweet is a reply to my piece. Garett writes:
Emoteconomist: One who is sure competition would eliminate inefficient diploma discrimination, but not inefficient gender discrimination.
Personally, I would apply the term "emoteconomist" to a much wider array of economists, but that's beside the point. I highly doubt this tweet is aimed at me or my piece. Garett knows that I have often written in support of Gary Becker's idea that economic competition decreases inefficient gender discrimination. He also of course knows the difference between preference-based discrimination (as in a Becker model) and signaling (as in a Spence model). So Garett's tweet is almost certainly not directed at my piece.

However, this Bryan Caplan post most certainly is a reply to my piece. At first I intended to rest my case, but Bryan has decided to delay our Bloggingheads debate two years (to coincide with the planned release of his book on the topic), so I might as well make some short reply.

Bryan does agree with a few of my points. For example, he agrees that college is unlikely to be important as an intelligence signal. But he disagrees strongly with my contention that college is not needed as a signal of working ability and temperament. In my piece I wrote:
So is college a way to signal conscientiousness and willingness to work? Maybe. But an even better way to signal that would be to actually work at a job for four years. One would think that if young people needed to do some hard work to signal their work ethics, some companies would spring up that gave young people real productive work to do, and provided evidence of their performance. Instead of paying through the nose to send a signal of your industriousness, you could get paid. But we don't see this happening.
Bryan replies:
Like most economists, Noah needs to be more sociological.  In a cultural vacuum, working four years might be a great signal of work ethic.  But no human being lives in a cultural vacuum.  We live in societies thick with norms and expectations. And in our society, people with strong work ethics go to college and people with bad work ethics don't.   
Disagree?  Just picture how your parents would react if you told them, "I'm not going to college.  I'm just going to get a job."  In our society, your parents definitely wouldn't respond, "That makes sense, because you're such a hard worker."  Why not?  Because in our society, most hard-workers choose college.  If a hard-working kid refuses to copy their behavior, people - including employers - understandably treat him as if he's lazy.  Because lazy is how he looks.
Actually, when I think about the college-as-signaling hypothesis, I do often think sociologically. But, as so often, the society I think of is not the United States - it's Japan. In Japan, it is taken as a given that college students don't work hard at their studies. College is even nicknamed "moratorium". Japanese college kids are expected to enjoy themselves and not work hard - in fact, when I ask Japanese young people why they don't consider going to America for college, they usually tell me that American students work too hard. And yet, top Japanese employers all require a college education (usually a Japanese college education) as a precondition for hiring.

But to be honest, Bryan is right that I don't think very sociologically. I don't really know much about sociology. Does he? Perhaps we should call in a sociologist. I will do so on Twitter.

Anyway, Bryan then writes:
Noah overlooks another key trait that education signals: sheer conformity to social norms.  In our society, you're supposed to go to college, and you're supposed to finish.  If you don't, the labor market sensibly questions your willingness to be a submissive worker bee. 
I agree that college, in America and also in Japan, is a hallowed cultural institution, and that there is a lot of social pressure on people to do it. But this seems like part of college's consumption value, not its value as a costly, Spence-style signal.

Next, Bryan quotes this part of my post:
There are many other reasons to doubt the signaling theory of college. A more likely explanation for college's enduring importance is that it provides a large number of benefits that are very hard to measure -- building social networks, broadening people's perspective, giving young people practice learning difficult new mental tasks and so forth. 
He replies:
I'm glad to hear this.  Noah inadvertently grants one of my key points: Most of education's labor market payoff is unrelated to the material your professors explicitly teach you.  Once you accept this heresy, you're stuck with some combination of my multidimensional signaling story, and Noah's amorphous, evasive "large number of benefits that are very hard to measure" story.  If that's the choice, my story will end up with the lions' share of the mix.  Noah is welcome to the leftovers.
Ah, but wait! College most certainly does provide some direct and obvious skill-based human capital benefits: reading, writing, working in groups, communicating, arguing, doing math, programming computers, etc. My point about non-obvious forms of human capital - human networks, cognitive broadening, emotional growth, exposure to new career ideas, sexual maturity and marriage - was in addition to the obvious benefits of coursework and instruction. And a third big chunk of college's value is consumption, which Bryan basically ignores.

After those three big bites, it is Bryan's "conformity signaling" that is left to hunt for the table scraps!

Finally, Bryan mentions the "sheepskin effect":
Final challenge for Noah: If education's rewards stem from this "large number of benefits that are very hard to measure," why on earth would the payoff for graduation vastly exceed the payoff for a typical year of education?  My explanation, of course, is that given the vast social pressure to cross educational milestones, failure to graduate sends a very negative signal to the labor market, leading to discontinuous rewards.  What's Noah's alternative?  Do schools really delay "building social networks, broadening people's perspective, giving young people practice learning difficult new mental tasks and so forth" to senior year?
I have no ready explanation of sheepskin effects - perhaps they are used by employers to extract a signal of how well one actually learned things in one's college courses. But signal extraction does not imply Spence-style signaling. Spence-style signaling must be costly, and for students who have done enough to graduate, collecting that sheepskin is simply not costly.

So I don't need to explain the sheepskin effect in order to rule out Bryan's explanation. Bryan views the sheepskin effect as evidence of signaling, but since it implies that much of the college payoff comes without cost, I view it as clear evidence against the signaling model of college.

Anyway, I think that about takes care of Bryan's points. As a final note, Bryan wants me to be more sociological, but I think he should be more psychological! If college really is wasteful, costly signaling, as Bryan posits, then people who complete it should view it as a wasteful, unnecessary chore. It should be something they wish they didn't have to do. But I bet a substantial majority of college graduates, if you ask them, will speak quite highly of their time in college, and will not wish that they had been able to go directly into the workforce instead.


P.S. - If you don't understand that signal extraction does not imply signaling, just contemplate the following sentence: "Fire doesn't emit smoke in order to prove to observers that it's really a fire."

31 comments:

  1. I often ask my Smith College econ students (based I think on something Bryan wrote) which they would prefer (A) They attend Harvard for four years as a regular student but have to tell everyone afterwards that they were working at Burger King during this time, or (B) They work at Burger King for four years but after everyone will think they graduated from Harvard. Most say they would prefer (B).

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    1. As the rightful overlord of Smith college, I demand you send these people to work at Burger King for a week so they will stop saying silly thingz.

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  2. It isn't about being hard working. It is about having a long term objective.

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    1. That sounds MUCH more plausible to me. I believe that what signaling value college does have is almost entirely this.

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    2. Anonymous11:52 PM

      Yes. The "hard-working" thing by Caplan is really terrible. But isn't say graduating high school and getting a job also a long-term objective? If I know I'm not suited towards a career that requires or benefits from college, then I shouldn't go to college. It has nothing to do with being hard working or long term objectives.

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    3. Anonymous11:58 PM

      But it does not signal long term objectives, and it is entirely possible for a person to graduate from high school because his or her parent's forced him to, not because he engaged in his own planning.

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  3. bjdubbs8:03 AM

    Interesting story (original and follow up) about girl who quit Sears to go to college.


    https://www.google.com/search?q=Jennifer+Schulte%2C+Age+18%2C+Is+on+a+%27Mission+to+Excel%27&ie=utf-8&oe=utf-8

    https://www.google.com/search?q=++Driven+Teen+Passes+Up+Career+At+Sears+for+a+More+Normal+Life&ie=utf-8&oe=utf-8

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  4. "I agree that college, in America and also in Japan, is a hallowed cultural institution, and that there is a lot of social pressure on people to do it. But this seems like part of college's consumption value, not its value as a costly, Spence-style signal of hard work."

    But the point of Caplan is not (or is not only) that college is a signal of hard work, is that firms prefer conformist employes and college is a signal of conformism.

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  5. Anonymous10:27 AM

    "...who complete it should view it as a wasteful, unnecessary chore."

    "...if you ask them, will speak quite highly of their time in college, and will not wish that they had been able to go directly into the workforce instead."

    But this is only true for those who actually went to college and completed it successfully. What about those who did not attend college or dropped out? I don't think it is necessary for college to be painful and boring for those who went there, but for those who chose not to go to college.

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    1. But this is only true for those who actually went to college and completed it successfully. What about those who did not attend college or dropped out?

      According to a Spence signaling model, those who pay the cost of the signal would be better off if they could have revealed their type for free. In other words, completing college should be an onerous but necessary chore.

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    2. And completing college is an onerous (student debt, yes?) but necessary chore - to have a shot at a middle/upper middle class lifestyle.

      I think the issue is that you're using 'signalling' in a fairly narrow sense but most people, even fellow economists, tend to use a slightly wider definition.

      I think college grants 'some' skills (hard and soft), 'some' networks/reputation benefits (that be consumption for you, signalling for others) and, generally, show that you're reasonably bright, reasonably capable of long term, brain-based, work and indeed happy to conform and submit yourself to society's diktat.

      It would not be very difficult to show a parallel between graduation and tribal rites of adulthood (though college can be a lot more fun than scarification).

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  6. Anonymous2:16 PM

    The sheepskin effect is pretty easy to explain with a simple employee search model. At most of my jobs, there were about 100 resumes in a pre-interview screening pool that had already passed basic sanity checks by HR. The hiring manager would go through that pool in an hour. If someone didn't go to college they have to be able to explain why their alternative was better in under 45 seconds, on paper, to someone who would be taking a risk by bringing in a non-standard candidate.

    A diploma is an extremely efficient signal from an informational perspective: it gets the point across in a minimum of time.

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    1. Yep. This is exactly my hypothesis!

      But the fact that there's a signal doesn't mean there's signaling. The fire doesn't put out smoke in order to convince people it's really a fire! This is what the GMU guys don't seem to get...

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    2. This brings up the usual evolutionary arguments about signalling. A male might signal good health and more effective reproduction to females by growing big antlers or smoothly pigmented feathers, but none of the parties involved needs to be aware that they are signalling. The male doesn't acquire the requisite attribute because he wants to reproduce (or get laid). It is a product of his metabolism and genetics. The female doesn't respond to the requisite attribute because she has reasoned out the bio-energetics and genetic linkages. She has her own metabolism and genome at play. The signalling works because its results are self reinforcing by means of reproduction and inheritance, genetic, epi-genetic and cultural. There is no need for teleology.

      You are arguing that a signal is not a signal without a teleology. Some aware, goal seeking entity recognizing cause and effect must generate the signal for some purpose. This is very different from the philosophy of most sciences which take a more materialistic approach. Ever since Newton, at least, most scientists have had no choice but to be materialists. This is why you may be corrected if you say a disease has evolved a resistance to antibiotics. It implies that the disease is an active force in forging its own fate as opposed to operating subject to the laws of science. You aren't colloquially incorrect, but if you are seeking to stop or respond to such evolutions, it pays to understand what is really happening.

      Economics has the problem that its agents actually do have demonstrable goals and understandings. I think this has hurt the field. Modeling individual hopes and actions blinds economists to the actual forces at play.

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    3. Noah please reply to Kaleberg's point. Disregarding it makes me think you have a poor grasp of signaling.

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  7. Anonymous2:27 PM

    Teach a year or so at a directional state college and you can see real growth in students. There are a lot of students who grow up isolated or sheltered in suburbs or small towns. They lack experience. Many had substandard K12 schools that awarded A's for what is considered C work at and elite HS. They need remediation. They must learn that failure is ok and how to recover from failure when they reach college. For many that lack skills, college is a crash course in life and labor market skills that they don't get in HS and is difficult to learn in a small town with little opportunity to learn.
    jonny bakho

    The GI Bill was successful because it helped people relocate from Nowheresville to Lando Opportunity. That tradition continues at public institutions today. MGoBlue as an elite flagship plays a lesser role than Ypsi, Kazoo and MtP. The vast number of college grads come from schools like this, not the Ivys.

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    1. Anonymous5:09 PM

      However, I will note that their job opportunities are not as good in many cases, and there are fewer available classes. I attended a small state U, and the class offered in Geology were much fewer and excluded Geophysics (although that may change this Fall, maybe). Japanese classes were not and most likely never will be offered. Economic Geology is most likely out forever. And Exxon recruiters have not darkened our doors for at least 20 years.

      There are serious advantages to major Universities and prestigious liberal arts colleges.

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  8. I don’t know anything about Spence signaling, but I have anecdotal evidence that the college premium is not entirely rational. My husband is an exceptional computer programmer. He’s largely self-taught (he’s been programming since elementary school), and he went to a 2-year technical school. He has almost 2 decades of work experience in highly technical video games programming. And yet every time he looks for a new job, he finds that his lack of a degree is a huge obstacle. He’s had interviewers abruptly stop the interview when they get to the education part of his CV (to which he replies “what, exactly, do you think I don’t know?”). 17 years of documented work experience, excellent references vs. a degree? Not rational.

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  9. Anonymous10:24 PM

    I think that the Japanese analogy isn't quite as clear cut as you make it here. The out-of-the-ordinary difficulty you require for signaling is not the challenge of completing a degree as it is the challenge of obtaining admission in the first place, to an extent I find even greater than in the United States.

    This has two facets: first, there are fewer regional universities that are acceptable alternatives to the two elite schools. A promising west coast American wouldn't be remiss in choosing Stanford, Cal Tech, UCLA, or Berkeley over an Ivy, but at the top tier Japanese have a much greater gravitational pull to Tokyo University and Kyoto University.
    Second, fairly or unfairly, the admissions standards to the aforementioned two Japanese schools are uniform students are identical for almost all students: pass the admissions exam or don't get in. There are no low SAT score students getting in with great extra-curriculars, an engaging life story, or affirmative action or legacy admission.

    The result of this is that the name brand of a university is an even starker sorting mechanism there than here: if you didn't get into Todai why should I waste my time on you?
    The second is that there is a feeling of certainty over the basic quality of graduates from these schools; a graduate has to demonstrate both the intelligence and obsessive dedication since middle school that is requisite to doing well on the exam (even if that requires becoming a ronin), there is no alternative route.
    I hold a degree from National Taiwan University, the Taiwanese equivalent of Todai and saw this on a daily basis in society, the workforce, and campus. Taiwan inherited its higher educational system from Japan during the colonial period, and still reflects it to a greater degree than it does China or America's systems.
    So what that getting the paper at the end was easy?

    (Btw if I quadruple posted,I apologize, this is my first time doing this)

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    1. Anonymous1:05 AM

      Indeed, that seems to be the basic system. There are a few exceptions, such as the college sports recruiting track, which does exist at institutions like Todai from what I have heard.

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    2. I don't believe that lazy people are more likely to drop out. Lazy people find taking "gut" classes in college more congenial than getting a job. Instead, people drop out because they have better opportunities (like BIll Gates or Mick Jagger). Anyway, this has always been my explanation for why there's so little evidence for the existence of sheepskin effects.

      Another very common reason people drop out is because they don't have the money to pay tuition, which is evidence of choosing the wrong parents, not of special talent or laziness.

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  10. Anonymous2:27 AM

    It's also important to note that there's no good evidence that sheepskin effects even exist. Bryan talks about how the returns to the final year of study are higher than the returns to the previous years, as a few studies have found, but there's an obvious selection problem: those who drop out of high school or university probably differ in unobservable ways to those who finish, so it's not an apples-to-apples comparison.

    To truly show sheepskin effects, you'd want to have a group of people, randomly assign some of them a diploma, randomly give others the same education but no diploma, and see how their wages differ later on. Unfortunately this is a little immoral/impractical, but Clark and Martorell (2014) have at least tried to deal with the selection problem, using regression discontinuity. Interestingly, they find no evidence of sheepskin effects for high school diplomas.

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    1. "those who drop out of high school or university probably differ in unobservable ways to those who finish, so it's not an apples-to-apples comparison."

      You just described why the graduation is a signal.

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    2. Anonymous7:53 PM

      I don't think so, though this is a complex topic.

      Here's why I say the previous studies don't give good evidence for sheepskin effects: Imagine that in our world there are no sheepskin effects, and no signalling role of education. So imagine the only reason education can causally lead to higher earnings is because of the things learned, the social ties made, etc.

      Even in this world, we could still find that the payoff for the final year of study is greater than the previous years. Why? Because of the unobservable problem: those who drop out are likely less motivated, less intelligent etc.

      Now, as you say in practice employers probably realise this, and so may be less likely to offer a high wage to these people. So there's some information being conveyed (I'll ignore whether or not we want to call it 'signalling'). But this doesn't happen in my imagined world without sheepskin effects.

      I re-iterate: we'd still see diploma holders earning more (holding constant the level of education) because the bad unobservable traits of those who drop out will result in them earning less in the labour market (they may not search as hard, or present themselves well at the interview, etc.)

      It's always important to keep in mind: what is the experiment we'd want to run to see whether sheepskin effects exist? It's certainly gathering the motivated people together and giving them diplomas, and then seeing how they compare to the diploma-less unmotivated people in the job market. It's randomly assigning diplomas so that the issue of unobservable traits disappears. Only then could we see the causal effect of a diploma on earnings.

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    3. Anonymous7:54 PM

      Last paragraph: I mean "It's certainly not gathering the motivated people..."

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    4. I don't believe that lazy people are more likely to drop out. Lazy people find taking "gut" classes in college more congenial than getting a job. Instead, people drop out because they have better opportunities (like BIll Gates or Mick Jagger). Anyway, this has always been my explanation for why there's so little evidence for the existence of sheepskin effects.

      Another very common reason people drop out is because they don't have the money to pay tuition, which is evidence of choosing the wrong parents, not of special talent or laziness.

      (I'm double-posting because I initially replied to the wrong comment. Sorry.)

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  11. Anonymous4:33 PM

    liked the Mayday Bloomberg article. Network models are definitely a huge shift of the macro technology frontier. Next step is to integrate with the network models of the financial system.
    Then we might see a connection with the models about self-fulfilling business cycles. Maybe changes in sentiment are not random at all, but are triggered by fundamentals in some small sector that are not observable in overly aggregated models

    user78626

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  12. Anonymous6:29 PM

    imagine the world if Mick Jagger stayed in the London School of Economics

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  13. Ralph Lauren is all about signalling.

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  14. The reasons the racists get involved is because the operative idea is that they have the superior genes or traits and they want to pass these genes and traits unto their progeny. But they don't want inferior beings to dominate and they also, sometimes like eugenics.

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  15. Silent Cal7:51 PM

    One question we could ask regarding the value of college: would you go back, ignoring for now the social and cultural difficulties? Personally, I'd love to spend four years learning whatever I fancy and socializing with like-minded folks, but the thought of paying my alma mater's tuition in exchange for that is laughable.

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