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The Professor and the Sacred Cow

by Robert VerBruggen

The Case against Education: Why the Education System Is a Waste of Time and Money, by Bryan Caplan (Princeton, 399 pp., $29.95)

This book’s argument is shocking, over the top — and more right than wrong.

Though heavily educated himself and a professor at a public university to boot, the economist Bryan Caplan has soured on schooling. It’s not necessarily a bad investment for individuals: Employers really do reward educational credentials in the job market, so if you have what it takes to graduate from college, you probably should. But it’s a horrible deal for society as a whole: For the most part, it just helps people prove and then “signal” their preexisting intelligence, conscientiousness, and conformity, rather than actually teaching them anything useful. If everyone had one fewer degree, workers would be ranked in exactly the same order, and little of value would be lost.

Common sense forms an important part of Caplan’s case. It’s simply a fact that much of what colleges teach — and much of what high schools teach, too — is utterly irrelevant to the jobs that students end up doing, even if it has value for other reasons. Poring over coursework statistics, for example, Caplan rates 40 percent of the typical high-school curriculum “low” in usefulness (arts, foreign languages, history, physical education); the same percentage of bachelor’s degrees are awarded in “low usefulness” fields (theology, psychology, English). And unlike high school, which teaches basic literacy and numeracy, college doesn’t seem to impart valuable general-purpose skills, to judge from the studies that have measured how such skills grow (or don’t). Education does have some benefits — one new paper estimates that an additional year of schooling raises a person’s IQ by one to five points, for instance — but for many students they are vastly oversold.

In other words, education can’t be valuable for teaching job skills when it doesn’t, in fact, teach job skills. And yet employers handsomely reward “useless” college degrees by giving their holders a leg up over high-school grads who apply for the same jobs, and even by requiring college degrees for jobs unrelated to anything taught in college.

Exactly how big is the premium for going to college, and precisely how much of this premium reflects the signaling of preexisting abilities rather than skills acquired in school? These are harder questions, requiring complicated math and a lot of guesswork.

In raw terms, the typical college graduate makes 70 percent more than a high-school grad. But that doesn’t mean much, because college grads are different even before they go to college — especially when it comes to that holy trinity of intelligence, conscientiousness, and conformity, which help one’s chances even without a college degree to signal them. Removing this “ability bias” is tricky, but when researchers compare college grads with high-school grads with the same personal traits, the premium falls to something like 40 percent.

There’s another problem, too, that Caplan doesn’t mention: College grads increasingly cluster in cities with a high cost of living, and a 2011 study from the economist Enrico Moretti suggests they do so mainly because that’s where the jobs for college grads are, not because they enjoy those cities more (in which case living in a more expensive city would be merely a consumption choice). As of 2000, the last year of data Moretti analyzed, higher cost of living ate up nearly one-sixth of the wage gap between high-school and college grads. That portion of the premium, too, is largely illusory.

Still, that leaves a sizable wage increase from going to college. And while some majors (e.g., computer science) create bigger income hikes than others (e.g., fine arts), most do supply a boost. That matters in itself if you’re an individual deciding whether to go to college — though you should also be aware that subpar students are at an immense risk of dropping out.

For the public at large, however, it matters not just whether but why college grads are more valuable to employers. It’s one thing to spend a lot of taxpayer money teaching useful skills; it’s quite another to spend that money fueling a zero-sum game in which young adults compete to waste as much time in school as they can.

For Caplan, the biggest telltale sign is the “sheepskin effect.” A single year of college is worth something to an employer — but a graduation year is worth 6.7 times as much as the others, even though many students slack off during their final year and so learn even less than they normally do. Caplan views this effect — which causes about 60 percent of the total income boost created by four years in college — as pure signaling, a revelation of how much employers value a diploma above and beyond the years of study it entails. Thus his “cautious” estimate is that 60 percent of the value of college lies in signaling. And since the income boosts from earlier years are likely partly from signaling as well (as someone who tries college is probably smarter, etc., than someone who doesn’t), his stab at a “reasonable” estimate is 80 percent.

There’s a problem here, though, and possibly a significant one: What if the sheepskin effect isn’t pure signaling of preexisting traits? As Caplan himself notes, the same “ability bias” that inflates the college wage premium also somewhat inflates the sheepskin effect: Those who graduate from college are smarter, etc., than those who drop out, and would have been somewhat more successful even if they, too, had dropped out. I would add that when it comes to a major that directly relates to a job, the degree is supposed to certify that someone has mastered all of the skills the job requires. Someone who knows three-quarters of what a teacher or engineer should know, for example, presumably isn’t three-quarters as valuable as someone who’s fully capable of functioning as a teacher or engineer. If we account for all this, perhaps Caplan’s “cautious” estimate isn’t so cautious: He might be overstating the effect he’s talking about.

Still, it’s clear that signaling is a huge proportion of what higher ed achieves — and it’s hard to say it teaches useful skills at all to people who major in fields unrelated to their eventual jobs. It’s a system ripe for reform.

Caplan is deliberately provocative in his recommendations, to the point that for high school and even elementary school he suggests cutting the curriculum down to the subjects he deems practical. (He pushes aside subjects such as music and civics by pointing out how little American adults know about them years later.) Public high schools should also charge “at least some tuition.” Good luck to him on all that. More promising are some of his milder ideas, such as classes that teach kids about the labor market so they can make more-informed decisions about higher education and training.

Regarding college, the biggest thing he’d like to see is drastic cuts to public funding. Let students and their families handle it. One might think that’s unfair to the poor, but Caplan argues otherwise: The current system forces poor students to get extra education just to keep up, and if poorer kids stopped getting college degrees because they couldn’t afford to, the correlation between educational attainment and the desired traits of intelligence, conscientiousness, and conformity would be weakened — forcing employers to develop some other way of finding good workers.

But this isn’t fully compelling, even on its own terms. Caplan himself writes that education would “still signal something,” so it’s clear that richer kids would have an easier time proving their job-market qualifications in the world he envisions. Higher ed is already a way the rich pass along their advantages, most brazenly through legacy admissions; this would make it more of one. One needn’t be a socialist to worry about such a development, and to think it should be better addressed in a plan to reduce wasteful spending on education.

Further, in a world where education was an unreliable indicator of worker quality, there would be costs associated with finding other ways of screening applicants — costs that Caplan neglects when, elsewhere in the book, he dismisses the signaling function of a college degree as waste from a public perspective. And if employers didn’t find an equally effective replacement for diplomas, they’d pay the costs of hiring the wrong people. These are costs Caplan discusses at length when explaining why, if education is just signaling, employers don’t ignore degrees, hire high-school grads, and fire them if they underperform: For one thing, it can take years for employers to sort out who the good employees are; for another, it’s bad for morale to fire people, so employers avoid dismissing bad workers and sometimes even help them get jobs elsewhere.

We wouldn’t have to deal with these wrinkles if we could — in a hypothetical Caplan invokes numerous times — get every student to earn one fewer degree, leaving the current ranking intact. But cutting public subsidies will not get us there from here, and it’s not at all clear what could.

My own pie-in-the-sky fix for higher-ed funding, for what it’s worth, is the income-share agreement (ISA). Through these arrangements — which are ever so slowly gaining popularity — schools or private investors pay for a student’s education in exchange for a percentage of his future income for a specified number of years. Schools should require all their students to finance their education this way, ideally with investors bidding to pick up the cost of educating each student above and beyond what public subsidies and part-time jobs can support. Schools could offer a “public option” if they wanted to.

ISAs solve a lot of problems at once. They make college available to everyone on the same terms (based on the student’s qualifications and the major chosen), and they place the burden on the student instead of his family. Payers will demand a high percentage of income — a not-so-subtle signal to reconsider — from subpar students who are likely to drop out and promising students who have chosen useless majors. And since students pay a percentage of their future income, by definition they’re never saddled with loan obligations they can’t meet. Should this system work as intended, ideally the taxpayer role could be reduced, too, leaving the system supported by the people it benefits most — successful former students.

Caplan is absolutely correct that our current system sends far too many people to college, and that we must explore ways to change that. If his provocations jump-start a discussion toward that end, the country will be better off for it.

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