Econ Duel: Is Education Signaling or Skill Building?

What’s the point of education?

Do you learn about things, because the learning itself matters, or is education all about the signal you -- and your degree -- send out to the world? Is education really about building skills, or does it serve only to transmit intangible traits, like your level of talent or your persistence?

These are the questions we’ll be tackling in this new Econ Duel debate from Marginal Revolution University.

And since we believe that nothing beats a good friend-vs-friend duel, we’ve picked two friends, whom you’re probably familiar with. For this debate on education as signaling vs. skill building, we’ve got Tyler Cowen and Alex Tabarrok, ready to go head-to-head.

You’ll see them argue about nearly everything—from peacocks, to private markets, to street sweepers, to Scandinavian education laws, and even the real value of Harvard University. In the end, you’ll see them duke things out, in a quest to determine education’s effect on our lives and well-being.

The video also asks:

-Why do students tend to rejoice when their professor cancels class?

-When we’re talking education, what really counts? Is it the soft skills, or the hard facts?

-If evolution still can’t sort out good vs. bad, can we really expect the market to do any better?

-Can the things you learn today still matter 20 years down the line?

-Why do peacocks still sport huge, colorful tails, despite the fact that evolution should’ve come up with a better signaling device by now?

Once you reach the end of the video, we have one specific request. It’s hugely important.

Ask yourself: “Is education only about signaling, or is it really about skill-building?”

Think it through and then let us know by voting at the end of the video!

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[Tyler] Alex's office is just
down the hall from mine.

He and I write a blog together

and we've been arguing
for 25 years now.

So we thought we'd do
some arguing for you.

This is about education.

Alex thinks education
is mostly about signaling,

namely demonstrating to the outside world

your underlying level of talent.

Whereas I think education
is mostly about learning.

So Alex, why don't you just tell us
a bit about how wrong you are?

[Alex] All right, but let's be clear
first about what we're arguing about.

It's very obvious that people
who go to college earn more.

Their incomes are higher.
The question is, why?

So I see there's three basic views.

The first view is that the people
who go to college are just smarter,

they have higher IQ, more ability,
something like that.

And that view says that
if these people didn't go to college,

they'd still be earning more
because of their natural abilities.

The second view, the human capital view,

is that people are actually
learning something in college

which is increasing their productivity.

This is the highly optimistic Tyler view.

That's my view, yes.
[Laughter]

And then we get to the correct view.

So the correct view, the signaling view,
is that by going to college,

people are sending a signal
to the job market

that they have higher IQ
or have greater ability,

but if they didn't send that signal,
if they didn't go to college,

their income would be much lower.

So you've got to send the signal
to get the higher income.

It's funny but most people
who believe in the signaling theory,

they actually learned it in school.

Well, we've got to learn
something in school.

Here's the striking thing about education.

If you put an extra person
through college,

and they're earning more,
many, many years later.

It's because they learned something.

If it were just a signal, they might
start off with a better job,

but then the world would see, well,
they really hadn't learned much

and over time,
their earnings would decline.

Well, oddly you think that the market
is more efficient than maybe even I do.

Look, take a look at the peacock's tail,
a classic example of a signal.

So the peacock is signaling
that it's macho,

it's got lots of good genes.

Evolution has had hundreds
of thousands of years

to come up with a better way
of doing this.

The peacock's tail is a big waste.

If evolution couldn't have
figured out a way

out of this signaling problem,

then maybe the private markets
can't do so either.

Peacocks can't just go up
and take the SATs

or any other standardized test.

If education were just about a signal,
it would be very easy to cut out

the middle man of the college,
give everyone an SAT or IQ test,

and just send them
to the jobs they ought to be at.

But no, people need social context.
They need to learn critical thinking.

They need to learn creativity.

And all of that goes on
in higher education.

Look, it's not just about IQ.
We all know smart people

who have lots of trouble in the workforce.

You've actually got to do
something hard. And it is hard.

Most people don't like education,
so it's hard for them to get a degree.

You've got to demonstrate
some persistence.

So it's not easy to find a way of--
something which is hard.

It's not easy for the private markets
to find a way of duplicating this.

Especially when everyone
is doing it already.

It looks really odd for a smart person
not to have a college degree today.

We pay you a salary at George Mason

and we pay you most of all
because of what you know

and what you do, right?
Not because of signaling.

Signaling may be true
in the short run...

your first job, you have a fancy degree...

but over time, the market sorts out
who is productive and who is not.

Getting that credential though,
it's so important.

Even to get a job
as a street sweeper today,

you need a degree.

And that's not because you learn
anything about street sweeping.

It's because
people require this credential

and that increases their wages.

A lot of what you learn in education,
it's not just the facts or the textbooks,

it's about social context.

It's about dealing
with different personality types.

It's about how to submit to authority.

It's about how to be conscientious
in all the right ways.

So when employers want a degree,
it makes a lot of sense actually.

You're getting the workers
who have learned a bunch of things.

Just getting your foot
in the door is a huge amount

of your entire future career.
Let's imagine,

you went to Harvard,
suppose you didn't go to Harvard, okay?

I think you'd be doing pretty well.

You have ability, high ability bias, okay?

You'd be writing for newspapers
or something like that.

But you wouldn't have been able
to be a professor.

Without that credential in your hand,

you wouldn't be teaching
at George Mason today.

I think your income would be lower.
You'd still be famous,

but your income would be
quite a bit lower.

But look, even if you look
at self-employed people,

when they're better educated
they learn more.

And that's not a question
of getting a foot in the door.

These are people who work for themselves.

What you learn from school
is a lot about social context,

and authority, and making connections,

and figuring out a big picture
of how the world works.

You might earn a skill, too.

Would you want to drive
over a bridge built by an engineer

who had not gone to Caltech?

- [Tyler] Probably not.
- [Alex] Well, that's a very nice story to tell,

that education teaches these social goods

and interaction with people.

It's kind of funny though, isn't it,
to say that what we're really teaching

is stuff that we're not actually teaching?

I don't actually teach those skills,
but students just get them by osmosis?

That seems hard to believe.

Funny but true.
And look, when you teach,

you should pull
your students aside and say,

"Look, here's how it really works.

Here's what the profession
is really like."

But you're communicating
things to them which are deeper

than what you intend
at any point in time.

- [Tyler] Yes, that's true.
- [Alex] I don't know.

I'm not sure I'm doing all of that.
Maybe you are.

- [Alex] Look, let me give you an example.
- [Tyler] Maybe we should pay you less.

Shh. Let me give an example.
Sometimes when I'm teaching,

I've got to go give a talk
at another university,

or go on a trip or something like that,
and I tell the students,

"Next week, class is canceled."

And they're happy, they're pleased, okay?

Maybe that's a little embarrassing to me,

but it seems peculiar, right?

If you went to the store
and you asked for a pair of jeans

and they gave you less, they gave you
a pair of shorts instead,

you'd be upset.
But when you tell the students,

"You're going to get less education,"
they're not upset. Well, why not?

They're not upset because they know
they're still going to get the degree,

and that's what counts.

Let me ask you,
what would you rather have?

Would you rather have
a Harvard education without a degree?

Or would you rather have
the Harvard degree, the piece of paper,

without the education?

Look, the question
isn't one or the other.

When you look at the data,
people in Scandinavian countries,

laws were changed, people had
to acquire an extra year of schooling,

which was not in any simple way
visible on their resumes

and still years later they earned more
because they learned more.

Look at the economic growth miracles:
South Korea, Singapore, China.

They invested in human capital,
developed highly talented labor forces.

Could Singapore be a leader
in biomedical technology

without good educational institutions?
No way.

These countries were growing before
they started to invest in education.

[Tyler] And they were able to upgrade
because they then educated.

There's also a lot of countries which
invested huge amounts of education,

they didn't grow at all.
In Africa, what happened there?

In Africa, they invested a lot
in education and they haven't grown.

This massive push
we have in the United States

that everybody has to have
a college education,

I think that's actually a problem.
Because what's really going on

is by forcing or by pushing
everybody into a college education,

we're raising their wages, yes,
but at the expense of people

who don't want a college education
or who don't have those abilities.

So in part there's
an negative externality there.

Pushing so many people
to get a college education

means that other people,
their wages are being lowered.

And we need to think about
those other people as well.

I agree that's often a problem,
but that's largely

because our K through 12 systems
are sometimes junk.

So the problem there is actually
not enough education at earlier levels.

Let's look at South Korea,

maybe the world's greatest
economic growth miracle ever.

Eighty percent of South Koreans finish
with some kind of higher education degree.

And you see the results in their economy.

Sure, South Korea is great,
but there are a lot of countries

which as I said, invested in education
and they're doing no better off.

You need more than
just education, that's true.

But the potential impact of education--

Again the magic view:

You need something else...
It's some combination...

You need good infrastructure.
You need good governance, right?

It's not only education,
no one never claimed that.

But look, when you go
and you actually get down

to the nitty gritty,
what do students remember?

They don't even remember
what they learned a year ago.

So how can what students learn today

be increasing their productivity
20 years from now

if they can't even remember
what they learned a year ago?

They learned critical thinking.
They learned creativity.

They learned social context.

They carry that with them,
even if they don't remember

what we taught them about
the elasticity of the demand curve.

"Elastic, inelastic, which is which?
My goodness!"

But that's maybe not
what they need to know.

It's a way of thought,
a way of approaching the world.

It's an acculturation.

It's a way of advancing
into a higher socioeconomic stratum.

And mostly it works... when it's good.

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