Education and signaling theory
What is the value of higher education? Is a getting a degree really worth it?
Hi, I’m Russell. This is issue #3 of Russell’s Index, where I write about the lessons I’ve learned—and continue to learn—as a founding employee at SharpestMinds. Subscribe for a new issue every week.
Higher education as a signal
I spent 8 years in higher education before joining the startup world. I have mixed feelings about it. I remember much of it fondly—not the education I received, but everything else that came with the “college experience”. It was my first time living away from home. I made friends. I dated. I partied. Even the all-nighters spent cramming for exams I remember with rose-colored glasses. It was all part of the experience. [1]
But the education I received did not actually prepare me for a career. I’ve learned most of the skills I’ve needed on the job. Sure, the “experience” was great, but the reason I got a degree in the first place—along with so many others—was to prepare me for a lucrative career.
But despite the disconnect between university curricula and the labour market, employers still use higher education to filter candidates. Students still stress about getting accepted to a good university—and pay ridiculous sums in tuition for the privilege. Why do we still rely on this wasteful, outdated system?
Brian Caplan, in The Case Against Education, argues that the value of a college degree comes mostly from its value as a signal:
The earnings premium for college grads has rocketed to over 70%.… How could such a lucrative investment be wasteful? The answer is a single word… signaling. Even if what a student learned in school is utterly useless, employers will happily pay extra if their scholastic achievement provides information about their productivity.
Higher education doesn’t produce better workers—it just reveals preexisting traits that the labour market values. It’s hard to screen and vet candidates. It’s easier to outsource that screening to the education system.
I touched on this in an old blog post arguing against PhDs. [2]
Why should anyone get PhD these days?
The letters.
Having those letters next to your name is great branding. Society is much more likely to think of you as a qualified, intelligent individual.
And, generally, they are proven right because grad school selects for these traits. Intelligent, driven people happen to be the same kind of people who apply to PhD programs in the first place. So when a hiring manager needs to fill a position, the safe bet is to pick the candidate with the PhD.
But it’s not just intelligence that a degree reveals. Caplan argues that education is such a powerful signal because it reveals not just intelligence, but other valuable traits as well. Conscientiousness—the student’s discipline, work ethic, commitment to quality, and so forth. And conformity—the worker’s grasp of and submission to social expectations.
In search of other signals
If the signalling theory of education upsets you, join the club. It reveals a very inefficient world. A lot humanity’s time and money is being directed towards pieces of paper that signal competence. Of course, education is not 100% signalling. Even Brian Caplan admits that. I did pick up some practical skills from my engineering degree. And I did get a lot of intrinsic value from the “college experience”.
But, for the most part, I’ve forgotten everything I was taught. When I finally left academia, I felt woefully unprepared for the “real world”. I’ve learnt so much more on the job than I did as a student—all that time in higher education feels so unnecessary.
Letting higher education continue to be a filter also reduces social mobility and increases inequality. The cost of education is steadily rising—making it inaccessible for a large chunk of the population that can’t afford the money or the time it takes to get a degree.
The good news is that we’re at the start of a paradigm shift. With so much knowledge available online, it’s easier for folks to self-teach. For skills where proof of work is easy to show—like programming, design, and writing—it’s possible to signal your competence with an impressive portfolio. We see mentees at SharpestMinds do this all the time. [3]
[1] It’s hard to imagine what the “college experience” is like this year. It’s not very fun during a pandemic, I would guess. Does an education degree received over Zoom still have the same signaling power?
[2] Disclaimer: I am a PhD dropout and slightly biased. I have a lot more to say about grad school and its broken incentive structure of “Publish or perish”. A topic for a future index.
[3] I’ll have more to say on this next week, but creating a portfolio that can signal the same traits as a college degree—intelligence, conscientiousness, and conformity—is not straightforward. In my opinion, one fully featured project that required sustained effort over a long period is a much stronger signal than several half-baked mini-projects.
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