Why universities teach you less than you think

Karsten M Heil

Students in academic dress outside the Exam Schools at Oxford University

Students in academic dress outside the Exam Schools at Oxford University

In the last months US President Obama has repeatedly urged that all high school graduates should seek to go to college. After all college graduates have a significantly lower unemployment rate, make more money and live longer. Higher education confers on you a wide array of positive consequences. Or has it?

This often repeated story implies that the learning that takes place in college is causally related to all the mentioned positive outcomes. You learn something new, acquire new skills and ultimately this is why employers want to hire you after college is successfully completed. A phenomenon economists call “signaling” puts this story into doubt. According to signalling theory the newly acquired knowledge and skills are only part of the story. The very fact that someone successfully finished college tells an employer a lot more about that person.

Let us consider a concrete example. In the 2007 graduating class of Harvard College 47% of all those graduates that entered the job market upon graduation (instead of say going on to graduate school) choose jobs in finance or consulting. Harvard does not offer undergraduate majors in business, management or finance; nor did most of these graduates major in economics or mathematics. Why then are so many Harvard history, philosophy or similarly qualified graduates considered highly valuable by financial companies? Surely not because of their extensive knowledge of finance.

The fact that someone graduated from Harvard signals – in the language of economists – that this person possesses a plethora of desirable traits that go well beyond of what that person has learned at Harvard. In order to be admitted into any outstanding US university in the first place you need solid grades and excellent results on standardized tests. To achieve both, one requires above average intelligence and a lot of hard work. Successfully graduating from university requires even more hard work. Thus, according to signaling theory, what Harvard really gives you is a metaphorical stamp on your forehead that says: smart, hard working, reliable.

How much of this phenomenon goes on in schools and universities is unclear and hard to quantify. George Mason University (GMU) economist Bryan Caplan, who is writing a forthcoming book on the subject called “The Case Against Education”, believes that it could be as much as 80% of all education. His GMU colleague Tyler Cowen disagrees with this assessment and puts the same figure at about 20%. Whatever the true percentage may be, signalling theory has important policy implications.

More and more public subsidies on higher education may simply increase tuition of good schools more and more as the better students try to stay on top. All this does not mean that there is not a lack of qualified graduates in specific fields. US companies find it increasingly difficult to find suitable engineers for example. What it does mean is that the simple credo that throwing more money at education will boost economic growth is far less likely to yield results than is commonly believed.

Photo courtesy of Mike Knell, Wikimedia Commons.