Postsecondary education: Can the signalling game be fixed?

_{(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:

1. Signals of quality
2. Required credentials
3. Vocational skills
4. 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:

1. Employers are willing to pay more to get high-productivity workers.
2. 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.

Comments

[Darwin]

I kept holding off on commenting on the last post, because I felt like I needed to come up with something better than my reflexive liberal arts guy annoyance that "real education" got relegated to the error variable of "valued experiences". But I still haven't, so I'll start here by getting it out of the way now. It annoys me.

That said, I think there's a lot of validity to this point about paying less and the value of education as a signaling mechanism. In that regard, I'd suggest also broadening the idea of "pay" a bit here: "low-productivity workers pay more for education"

That's not just a matter of paying more (spending more years and thus paying more, paying for courses and then failing, not carrying a high enough course load at a private college where you pay by the semester rather than the credit, not winning scholarships that pay for college for you, etc.) it seems like the sort of person the signal is meant to identify:
- will find college work easier and thus will expend less work on doing it well.
- will enjoy education more and thus will be more inclined to continue on with education
- will be better at balancing the demands of completing higher level educational work without the result suffering, and thus will experience fewer trade offs while still getting the most out of an education.

In addition to the strictly financial aspects (which are certainly important) it strikes me that these might come in as elements of "paying less" which would identify potential high productivity workers.

[bearing]

" I felt like I needed to come up with something better than my reflexive liberal arts guy annoyance that "real education" got relegated to the error variable of "valued experiences". But I still haven't, so I'll start here by getting it out of the way now. It annoys me."

I can understand that feeling. I got a lot of experiences out of my own college education that haven't contributed economically to the work that I do, but that I'm still glad I had and that formed the person I am today. That's why I called them "valued" experiences (blame Mark for the "error" joke, he was pleased with the math pun).

Here's the thing -- I have to account, somewhere, for the aspects of postsecondary training that do not lend themselves well to quantitative measuring of "return on investment" but that are nevertheless benefits that people hope to gain. A credential is worth something measurable. A skill that gets used is worth something measurable. A signal is worth something measurable. But there are a lot of things in education that confer a subjective value -- it might matter to the student far more than it matters to any employer -- and so it's the student, and no one else, who can put a value on it, and decide how much is a reasonable amount to pay.

Incidentally, I think it's a mistake to call either character-building OR vocational training "real education" and imply that the other sort isn't "real education." This is one of the points I've been trying to make by quoting all these Church documents about the necessary content of education. It includes religious education, moral instruction, vocational training (so that young people can "establish a family...in favorable...economic conditions") and the transmission of culture -- it is all in there. You can't just say that the cultural stuff is "real" education and the acquisition of useful skills isn't. (Not that you necessarily were saying that, but there's a little ambiguity in what you wrote that makes me want to clear that up just in case.)

Agreed on your other points about signaling and about the broad meaning of "paying more" for education -- I had hoped to make the same point, actually.

[Bearing]

(to put it another way, I think it would be a worthwhile exercise for prospective students to try to name and claim the subjective benefits they hope to get from their education, in order to ask themselves the questions:

-- how much are these worth to me? And
-- is traditional college the best way I can get them?

But it muddies the waters if prospective students pretend that the subjective benefits of education are the same thing as a credential or a signal or a measurable skill.)

[Darwin]

Well, I would tend to differentiate "real education" from "training". Sometimes education sought for the purpose of one's vocation, or to increase one's future earning power, may be real education, and other times it may just be training. I don't hold that education has to be impractical to be "real".

But one of the basic disconnects here is that I would tend to hold that the purpose of higher education in general should not be seen to be increasing one's earning power or preparing one for a career, it should be "becoming an educated person" -- something I think a lot of vocational degrees are not intended to do.

I'd probably assign college bullets rather than four:

- Becoming a more fully educated person
- Economic signalling that one both is educated and has the skills that normally are required in acquiring education.

I tend to be down on certifications and vocational education in general, but if they are required for the particular line of work one wants to pursue (and certainly, there are areas that clearly require this) I'd see that as something separate that one pursues either simultaneous to or subsequent to getting a real college education. (Or instead, since, let's be honest: A lot of people really aren't interested in the kind of higher education that college ought to be.)

[bearing]

Are those who do not go to college, then, necessarily "uneducated?"

[Darwin]

I would say "usually" rather than "necessarily" and "less" rather than "un" (since education seems like more of a spectrum than a binary), but with those modifications, yes, I would say that.

[Bearing]

Fair enough. Not going to college produces someone who is less educated than someone who went to college (although I bet you'd agree that it is quite possible these days to go to college and learn a lot of stuff that is simply wrong-headed, so that you might have been better off not going at all).

Whether to count skills-training as a type of education or not strikes me as a linguistic or semantic difference that isn't important enough to argue about.

I want to bring it back around, though, to the notion that we are trying to work out what sort of education parents have a duty to provide for their children. Is what you call "real education" a necessity or a luxury?

[Christian]

"Well, I would tend to differentiate "real education" from "training".

I do too:

http://platytera.blogspot.com/2009/02/education-all-that.html

[bearing]

Christian -

I don't think there's anything wrong with valuing the transmission of culture more than the acquisition of skills. Really I don't. I'm trying to push back against this notion, though, that because it's difficult to put a price or value or return on what you and Darwin are calling "real education," because it's "priceless," that somehow there's no limit to the price that ought to be paid.

If you put yourself in the poorhouse to finance your "real education," then I'm saying that's actually a problem.

Having established that there are *some* limits somewhere to it, I'm interested in hashing out what those limits are. And also in pointing out that acquiring marketable skills in order to finance your "real education" is not a crazy idea, either. You might even call it honorable, or - egads - consider the acquisition of the marketable skills as a necessary part of the "real education."

I think I'm bothered by the declassification of skill-acquisition here because we know from numerous Church documents and by imitation of the saints that labor is honorable, that a job well done is a moral good. If labor is honorable and a skill well practiced is good, if the body is as much a part of the person as the mind/soul, then how is it that manual skill training doesn't count?

[Darwin]

I don't know to what extent I differentiate between a necessity and a luxury, but when you get down to it even necessities aren't "priceless".

100 years ago it was pretty common for someone to have to drop out of formal education around the 8th grade in order to support himself and his family. I don't think that was immoral, or that, granting (as I think we must) that one is far better educated if one is able to continue one's education past 13, that means that parents were morally compelled to reduce themselves to penury to keep children in school past 13 if that simply wasn't affordable.

Also, I think it's important to recognize that some people have no desire or aptitude to continue their educations beyond a given point. In our current culture, we set that age somewhere between 16-18 that we don't compel people to get more education if they don't want to. I certainly don't think we should push that age older. So if someone doesn't want to go to college, I certainly don't think we should compel them to simply because they might in theory become more educated. (Especially since, in all likelihood, someone who really doesn't want to be in college won't learn much there.)

In relation to the dignity of work: I certainly don't want to denigrate work, manual or otherwise. (After all, training might involve learning some non manual trade: CPA, real estate license, license to sell insurance, etc.) I would see labor as a good and as a duty, I just see it as a different good than education. Getting training so that one can learn a trade or receive the requisite certification to perform a trade doesn't strike me as ignoble, I just don't think it's "education" in the same sense that the liberal arts (broadly construed) are.

[Bearing]

So, Darwin, pretty much the whole reason I am going through this series is to try to answer some questions regarding postsecondary education AND training -- all the instruction you can buy to develop the person, in character and abilities, past the age of majority. I see that you don't like lumping training in with education and calling it the same name, but I still want to consider it as a set, because what it has in common is (a) it costs money, time and effort (b) it is nonetheless desirable to many people (c) it has some effect on prospects for supporting a family (d) it develops character.

You can think of it as a set of options, some of which are called "education" and some of which are called something else, but at some point I need to deal with it all together, because I am trying to answer the question: how are the parents of a young adult to judge what sort of material help -- towards liberal-arts education towards training, or both -- they owe their offspring by virtue of being their parents, whose responsibility is the education (and, I think, the training) of a child? I am trying to use a meaning of the word "education" that is consistent with the Church documents I have been citing, and I think it includes training -- anything "by means of" which a young adult can establish a family. I keep coming back to that "favorable moral, social, and economic circumstances."

I feel like I am getting side tracked on your discomfort with including "training" as a sort of "education," but I really am trying to group all this stuff together for the purpose of answering the question of what parents should do for their offspring *in general* -- whether the offspring have the aptitude and desire to continue in traditional liberal-arts college education, whether to delve into the sciences, whether to learn a trade, or none of the above.

[Darwin]

Hmmm.

I can see how we're talking at cross purposes a bit here.

I do understand the overall theme, but it had seemed to me that a lot of the conclusions thus far basically centered around: "You should probably avoid four year college education, especially in the liberal arts, because it's basically a four year vacation of negligible financial value."

Which is a message I tend to object to pretty strongly.

That, and I guess the funding question just doesn't seem all that interesting to me. I think that if parents are able to without undue hardship, it's certainly good of them to help out with college expenses (just as parents might well, if able, help out with other major expenses such as a wedding or getting a first car or house) but otherwise it seems fine to me for the student to bear the brunt of the cost. At the risk of sounding simplistic, it just doesn't seem like that hard a question. (To be honest, it never would have occurred to me to search the catechism and such on the topic. Which I guess shows that I'm a bad person to comment on the series.)

[Christian]

"somehow there's no limit to the price that ought to be paid."

I agree: I just finished paying for 4 years at the College of Charleston (SC). I told my son I couldn't afford a private school or an out of state public one. My limit was to pay for an in-state public school. I'd say it cost what it cost because that's where the market is. Sure, I wish it were cheaper, but a poor state can't keep making people who aren't in college pay for those who do.

[Christian]

"If labor is honorable and a skill well practiced is good, if the body is as much a part of the person as the mind/soul, then how is it that manual skill training doesn't count?"

I agree again, and being an architect I'm very appreciative of the men who actually build what I draw pictures of. I've regularly told my kids that there's no point in college unless there's something there you can't learn/do without going. I expect no more than 3 of my 5 children will do so.