Monday, April 30, 2012

Is Education About Learning or Signaling?

What is the point of education, college or otherwise?

This is related to a discussion we had back in March. At the time I tabled it pending coverage of some growth theory.

We hear a lot that education, as a cultural phenomenon, is important for growth. The macroeconomic evidence on this is actually fairly weak. There is a positive effect, but it isn’t big.

And, of course, you’ve all heard people complain about the weak K-12 educational system in America, and how this will lead to the sky falling, cats living with dogs, and so on.

Macroeconomists are not sure what to make of this. Broadly, the relative unimportance of education in growth accounting is similar to what happens with other variables we think are important: growth seems to be inelastic with respect to most of them.

This relates back to the underlying problem that we really don’t know what people do or should get out of school.

Is it learning new stuff? In favor of this position is the observation that people who know more tend to make more money, and regions where average education is higher tend to have higher earnings. Against this is the common observation of cramming, and the well-known fact that most of us forget what we “learn” shortly after the class ends.

Alternatively, some view education as mostly about signaling. Taking classes signals to employers that you may be more productive than your peers. Actually finishing classes (and degrees) sends an even stronger signal. In favor of this view is the observation that income tends to be more highly correlated with completing degrees rather than what you actually majored in. You have a lot of experiences with this in a business school: accounting majors have better job opportunities, but don’t end up getting paid more on average. Against this common observation is that if it’s all about signaling, why does anyone learn anything at all? Couldn’t we just signal our conformity and ability to finish tasks by, say, doing volunteer work?

The signaling view is really difficult to reconcile with the folktale we tell each other that more education is always a good thing.

But, here’s a thought for you. If learning is so important, why are incomes higher for people who take classes, get grades, and forget everything later on than for people who never took the classes at all?

It gets worse! Market outcomes suggest that it is worse to take a class and fail than to never take the class at all. How can that be so if education is about learning?

These arguments make it hard to visualize where education falls in a growth model, and how we should measure it. If we can’t figure out what it is, we probably can’t measure it, and if we can’t measure it we won’t be able to figure out if it’s important. In practice, what we do now is include variables like average years of schooling into our growth accounting. Obviously, that’s missing a lot.

It’s not even easy to see where education would fit in the growth model if we could measure it.

If education is about learning, then it is probably a form of capital. Certainly what we know seems to depreciate like capital does.

But, if education is about signaling our ability to conform, follow directions, and finish tasks, then it is more like a technology. So, society improves when it accumulates a bigger stock of people who get things done.

One thing we do know is that the plausible size of exponents in a simple production function, like the Cobb-Douglas, suggest that technology is a lot more important to well-being than capital is.

But, that’s probably personally discomfiting: the typical contribution of an individual to the well-being of us all is then to be less like an individual and more like an automoton that finishes what it starts.

I bet you didn’t think that this is the sort of thing you’d end up having to think about when you started this macroeconomics class.

If you want to learn more about this, and follow the debates, you should read the stuff that Bryan Caplan writes at EconLog. Here’s a bunch to start out with for your summer reading.

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