(This post is part of the series on postsecondary education.)
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In my last post about postsecondary education, I enumerated the four things you're buying when you buy education:
- Signals of quality
- Required credentials
- Vocational skills
- Valued experiences
After I finished the post, I got up from the computer and sat down next to Mark, and explained what I had come up with to him. He thought maybe I should have lumped "required credentials" in with "signal value" — and there is some good reason for that, as you'll see — but otherwise agreed with the list.
"So, if those are the four things you're buying, then how do you game the system? How do you win the game?" I asked him.
"I guess you do it by paying as little as possible for the signal," he said.
And this seemed pretty reasonable to me at the time.
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But I wanted to know more about the signaling model, so I started googling around. I found out two useful things.
First, I learned that the model was devised in the 1970's by American economist Michael Spence, who developed it — in part — around the same scenario that we are discussing here: that employers use education level as a proxy for valuable abilities.
Second, that Spence, along with two others, won the "Nobel economics prize" (technically it is the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel) for this work, and his acceptance lecture is online and gives an overview of the work.
I haven't tried to digest the entire thing, but I read enough of it to find something funny about Mark's suggestion. In the simplest signalling model, Spence explains, there are two kinds of workers: those with high productivity, and those with low productivity. There are two salient features that distinguish the two groups:
- Employers are willing to pay more to get high-productivity workers.
- Each "unit of education" costs a low-productivity worker more than it does a high-productivity worker.
This is the whole reason why — in the simplest, pure signalling model — education serves as a "signal" of productivity: because it costs the undesirable workers more to acquire each unit of education, at each successive level of education the pool of employees is more concentrated in the desirable employees. Employers will pay higher wages for more-highly-educated employees because at those levels a randomly chosen employee has a higher chance of being one of the desirable ones.
But the whole reason this works, in the simple signalling theory, is that low-productivity workers pay more for education. This is almost like defining a low-productivity worker as "one who pays too much for education."
So when Mark suggested that you could beat the signalling game by "not paying too much for the signal," he was basically suggesting that you could beat the game by being the kind of worker that employers want to hire.
Which rather gets you back to your starting point, doesn't it?
Those who have, get more. Those who have not, lose what they have. I think I have heard this before.
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Anyway, that is about a pure-signal system, where education confers zero added value on a worker — its whole value is to the employer as a sorting mechanism. In reality, education can confer value on a student — though whether it can turn a low-productivity worker into a high-productivity worker is questionable, and it may be that some students gain no valuable skills at all (or that they have difficulty getting connected with the employers who might value what they have gained).
I'm tempted to go off on a tirade about the inefficiencies in the system. Spence's theory, if you go on reading it, is that the signalling system is made more efficient if you tax education (which in the theory doesn't confer any value, only signals it). This raises the cost of education, so people buy less of it with the same out-of-pocket costs, and the tax revenues can be distributed to all the people as refunds; but it preserves the signal. Of course, we don't tax it, we subsidize it, which is the opposite of taxing it, and maybe that makes the system the opposite of efficient.
And of course there is the problem of the third party not mentioned in Spence's theory (at least as far as I read), namely, the people who are selling the education; they don't have an incentive either to make the signal more useful or to confer skills on people; you might say that they have an incentive to attract as many low-productivity customers as possible, because those are the ones who spend the most for what they get. Maybe, if you are selling educational units for their signal value, you only want as many high-productivity people at your educational institution as you need to keep the prestige of your institution high, so you can attract lots of low-productivity people, who are paying your bills. It costs less to sell them education.
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But the question before us is not whether we should change the current system; it's what kind of education the individual should buy, given the system that we have.
It seems like it might be useful to know yourself. Are you low-productivity or high-productivity by nature? Are you already the kind of person that employers want? Will you be paying too much for a signal that says "I'm high-quality goods?" Will you be found out in the end anyway as the impostor you are? Or are you the real deal, and will stand out from the crowd?
It seems like it might be useful to know whether you have what it takes to get the required credential. What are the chances that you'll sink a lot of money and time into education, only to drop out before acquiring the degree/certificate/license that the gatekeepers require?
It seems like it might be useful to consider how education might build your measurable skill-set. And watch out for promises that education will build a set of skills that are "intangible" or "unmeasurable" but that are nevertheless, supposedly, valuable… the emperor may not have any clothes.
Finally, what about those valued experiences? It seems like it might be useful to consider how much you are willing to pay for each year of a multi-year vacation. Because, you know, you could spend your money getting valuable experiences a lot of other ways, too.
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