In what I think is one of the most important studies on this subject—The case against education—Bryan Caplan shows that, at least in the US, earnings for those who complete one, two, three or even four years of higher education but do not actually complete the degree do not earn more than those who do not go to university. The graduate premium is gained by actually crossing the finish line, resulting in what some call "the sheepskin effect". This suggests that the effect is mostly signaling, although there is certainly a human capital effect for some degrees. Graduates in petroleum engineering, for example, can expect to earn well over $100k in their first job.
The question, then, is what, exactly, are bachelor's degrees signaling? If it is mostly ability, then, as Daisy suggests, some kind of test would do as well, but would be far less expensive. However Bryan Caplan argues—convincingly to my mind—that the signal is mostly about conformity and conscientiousness. What employers get, when they recruit graduates, is people who have shown that they are willing to knuckle down, play by the rules, hand stuff in on time, and so on for four (or in the case of the UK, three) years. No one-off test of intelligence or academic achievement can do that.
It is also important to bear in mind that, in the UK at least, there is substantial heterogeneity in the returns to higher education. Older students often have negative returns, not least because they have fewer years in the workplace to earn back the cost of their degrees. Part-time students, especially men, have much smaller, and often negative returns even after prior attainment is taken into account, and of as noted above degree subject also makes a difference.
Studies by the Institute of Fiscal Studies show that around a quarter of men and around one-sixth of women have negative lifetime returns, and, unsurprisingly, these negative effects are more marked in some subjects (e.g., creative arts, social care).
Of course earning more money should not be the main reason for embarking on a degree, but, especially given the increased repayment costs, students need, as Daisy suggests, better information about the costs and benefits.
Yes, I agree that Caplan's work is great and should be better known in the UK. You are right that a one-off test couldn't provide you with as reliable information on diligence and conscientiousness as a three-year degree. But I suspect that if employers had to pay the full cost of the signal, and not the employee, they would find a way of proving diligence that didn't cost 50k and rising!
Thank, I think this is an interesting debate. I have to say I took my degree back in the 1970s and therefore didn't have to pay fees. I studied English and drama and took a teaching qualification. My learning was through tutorials and one to ones, as well as practicals for drama. I was spared mass lectures which I don't think would have suited my learning style then. I did have a career in teaching: primary class teacher, two headships and then working for a local education authority and local HEIs as a leadership adviser. I certainly never earned serious money though I did end up with a pension. When I started at university I think around 10 to 15 % of the UK population were going into HE. I'm sure a significant percentage of those were from private education. I rather bucked the trend then as I'd failed my 11 plus and went to one of the very first comprehensive schools in England. Genuinely, I don't recall anyone from my school cohort ever thinking about how much they might earn. Most kids then left school ASAP including those at grammar schools. There was work aplenty whether you had paper qualifications or not. Many 15 or 16 year olds left school and went straight into apprenticeships. You could certainly get a management trainee post with 5 O levels. Ditto a well paid admin job in local government or the civil service. Decades on and the landscape has changed. Jobs that someone with O or A levels back then would be considered for, now require at least a degree to get on the shortlist.
I don't think a degree is worth it if you don't enjoy the experience both socially and educationally. If the career you want to pursue requires a degree qualification then there's no option but by definition you should at the very least be enjoying the learning.
I would definitely be urging a review of secondary education. I'd scrap GCSE and replaced it with some kind of leaving school diploma which recognised your years in education. Now we have a ridiculous scenario, thanks to Michael Gove, where any 16 year olds who don't attain 5 good passes at GCSE including maths and English, will struggle to get on any worthwhile F.E. course. Getting A stars in GCSE or A level doesn't always equate with being 'bright'. There are plenty of bright and successful people in every walk of life with few paper qualifications to their name. The current Queen for example.
There's also the Catch 22 about student loans. Most are available only for degree courses. Hence the courses offered by music, art, dance and drama schools have now all morphed into degree courses. Unless you aspire to teach one of these subjects you don't need a degree. I can't imagine someone failing an audition based on the fact they only got a 2:2.
Sad to say much of the research and much of the social media suggests HE students now are disappointed with the experience. They are urged and encouraged by their schools and their parents and grandparent to go to university. But the 21st century is a different place just as the past is a foreign country. The experience of going away from home back in the 20th century was also about growing up. Doing things your way. Most student accommodation then wouldn't get through health and safety now but it was cheap and we were free to do what we wanted. Most kids now have a far more relaxed relationship with their parents which is great. But it means that going away to university their expectations are different. Plus of course it's likely that many 'desk' jobs will evolve dramatically over the next decade as AI rules OK? I have younger friends who are plumbers, electricians, beauticians they earn good money and I don't think they're likely to be usurped by AI.
It’s pathetic and sad that the discussion about university education has been whittled down to the money question. Once upon a time the university experience was about exposing oneself to other points of view, meeting people you might never have met, and learning a thing or two to expand one’s problem solving ability. It does not move the discussion forward in any meaningful manner by parsing it down to the money question. In fact it cheapens it. Sad to see this discussion taking place in the UK.
I agree that it's sad that so many people are judging a university education by how much it might add to your income. But having the discussion does allow other points to be raised as you've done. I think the university experience, certainly in the UK is different from a few decades back. There's definitely a difference in the quality of provision on offer. I regret the loss of polytechnics. I didn't see them as in any way inferior to universities. Now I think we do have many universities which are probably not offering as high a standard of teaching as others.
Yes I think it’s changed too. I also see that there are way more parents today that are persuading their kids to enrol at uni than a generation ago, and these kids really shouldn’t be there. Which is a real shame because there are so many alternatives kids can access these days; not everyone is right for uni, just as not everyone is right for Chef School. And these headlines suggesting costs should equal a good career is a distraction. There are so many aspects at play here. If anything what should be discussed, and debated, are how the standards have changed over the years, and how the knowledge gap has grown between high school graduation and first year post secondary. I know in the UK it might not be as bad as it is here in Canada, but it’s a discussion that’s long overdue.
Do keep in mind, though, that some of the "human capital" that universities produce is not due to academics, but due to a particular kind of socialization (mostly peer-to-peer) that happens in university.
Publishing earnings info for graduates is still useful even if it undervalues some socially useful degrees. Students taking on debt should be as informed as possible.
The government subsidy would also benefit as it may indicate where subsidies should be prioritized.
The financial value of a degree is an important but separate questions from the human capital versus signalling debate.
An alternative to standardized tests is internships. If several of these are spaced across a degree program employers will get a much better view of the human capital accumulation and students will get information on how employable they are.
If these students are not paid for the internship that’s a strong hint as to the financial value of their degree.
I would definitely be in favour of publishing earnings info, as transparency is useful. But if that is the only dataset you have it can end up being quite misleading.
I would expect this to be more than just avg income. It should include quartile info and geographic factors to ensure it provides enough data to be informed about the financial outcomes of a particular program.
I’m not sure the hospital comparison is so helpful. People do choose their post secondary path with the financial outcome in mind so judging which path to take is helped with good data.
As long as the data is rich enough they will be less misled about the financial outcome than without it.
Without this data people estimate financial outcomes based on a few examples or marketing.
Also people already take programs that they know have risky financial outcomes so I think people do know there are other factors to consider.
I think one way people can be misled would be if the data missed key information like drop out rate. But I’m assuming we get good reports designed by experts to inform people completing secondary school.
Why would you think that? I could never imagine what would appeal about looking inside people’s mouths and inflicting pain except the deputy heads promise of riches. I did not follow his advice.
It's a good summary of the basic economics, which IMHO everyone should read. One small build on the "signalling" argument, is that a first from a demanding university is a signal not just of a bright 18yo add three years, but that person nailed their degree with diligence, planning, punctuality and big-game mentality, and those behaviours are useful to employers particularly in highly-paid jobs. The signalling is itself a form of human capital, because a less intelligent person would have incurred much greater cost to get a first, and therefore would be less likely to bother in the first place.
Rightly, this links to the questions of who should pay, how should it be structured, and how many people should attend. The theories are robust (there is both social and private benefit; there are both human capital and signalling benefits) but measurement of benefit is sketchy for the reasons you say.
A solution which perhaps you might cover, is to make universities have skin-in-the-game. Get the universities, or the pension funds of the admissions and teaching staff, to underwrite the costs of the student loan. Sure, the government provides the liquidity, but if you admit people that go on work in roles that aren't demanding, don't benefit from a degree, or don't work at all, and never repay, then you carry the can.
In what I think is one of the most important studies on this subject—The case against education—Bryan Caplan shows that, at least in the US, earnings for those who complete one, two, three or even four years of higher education but do not actually complete the degree do not earn more than those who do not go to university. The graduate premium is gained by actually crossing the finish line, resulting in what some call "the sheepskin effect". This suggests that the effect is mostly signaling, although there is certainly a human capital effect for some degrees. Graduates in petroleum engineering, for example, can expect to earn well over $100k in their first job.
The question, then, is what, exactly, are bachelor's degrees signaling? If it is mostly ability, then, as Daisy suggests, some kind of test would do as well, but would be far less expensive. However Bryan Caplan argues—convincingly to my mind—that the signal is mostly about conformity and conscientiousness. What employers get, when they recruit graduates, is people who have shown that they are willing to knuckle down, play by the rules, hand stuff in on time, and so on for four (or in the case of the UK, three) years. No one-off test of intelligence or academic achievement can do that.
It is also important to bear in mind that, in the UK at least, there is substantial heterogeneity in the returns to higher education. Older students often have negative returns, not least because they have fewer years in the workplace to earn back the cost of their degrees. Part-time students, especially men, have much smaller, and often negative returns even after prior attainment is taken into account, and of as noted above degree subject also makes a difference.
Studies by the Institute of Fiscal Studies show that around a quarter of men and around one-sixth of women have negative lifetime returns, and, unsurprisingly, these negative effects are more marked in some subjects (e.g., creative arts, social care).
Of course earning more money should not be the main reason for embarking on a degree, but, especially given the increased repayment costs, students need, as Daisy suggests, better information about the costs and benefits.
Yes, I agree that Caplan's work is great and should be better known in the UK. You are right that a one-off test couldn't provide you with as reliable information on diligence and conscientiousness as a three-year degree. But I suspect that if employers had to pay the full cost of the signal, and not the employee, they would find a way of proving diligence that didn't cost 50k and rising!
Thank, I think this is an interesting debate. I have to say I took my degree back in the 1970s and therefore didn't have to pay fees. I studied English and drama and took a teaching qualification. My learning was through tutorials and one to ones, as well as practicals for drama. I was spared mass lectures which I don't think would have suited my learning style then. I did have a career in teaching: primary class teacher, two headships and then working for a local education authority and local HEIs as a leadership adviser. I certainly never earned serious money though I did end up with a pension. When I started at university I think around 10 to 15 % of the UK population were going into HE. I'm sure a significant percentage of those were from private education. I rather bucked the trend then as I'd failed my 11 plus and went to one of the very first comprehensive schools in England. Genuinely, I don't recall anyone from my school cohort ever thinking about how much they might earn. Most kids then left school ASAP including those at grammar schools. There was work aplenty whether you had paper qualifications or not. Many 15 or 16 year olds left school and went straight into apprenticeships. You could certainly get a management trainee post with 5 O levels. Ditto a well paid admin job in local government or the civil service. Decades on and the landscape has changed. Jobs that someone with O or A levels back then would be considered for, now require at least a degree to get on the shortlist.
I don't think a degree is worth it if you don't enjoy the experience both socially and educationally. If the career you want to pursue requires a degree qualification then there's no option but by definition you should at the very least be enjoying the learning.
I would definitely be urging a review of secondary education. I'd scrap GCSE and replaced it with some kind of leaving school diploma which recognised your years in education. Now we have a ridiculous scenario, thanks to Michael Gove, where any 16 year olds who don't attain 5 good passes at GCSE including maths and English, will struggle to get on any worthwhile F.E. course. Getting A stars in GCSE or A level doesn't always equate with being 'bright'. There are plenty of bright and successful people in every walk of life with few paper qualifications to their name. The current Queen for example.
There's also the Catch 22 about student loans. Most are available only for degree courses. Hence the courses offered by music, art, dance and drama schools have now all morphed into degree courses. Unless you aspire to teach one of these subjects you don't need a degree. I can't imagine someone failing an audition based on the fact they only got a 2:2.
Sad to say much of the research and much of the social media suggests HE students now are disappointed with the experience. They are urged and encouraged by their schools and their parents and grandparent to go to university. But the 21st century is a different place just as the past is a foreign country. The experience of going away from home back in the 20th century was also about growing up. Doing things your way. Most student accommodation then wouldn't get through health and safety now but it was cheap and we were free to do what we wanted. Most kids now have a far more relaxed relationship with their parents which is great. But it means that going away to university their expectations are different. Plus of course it's likely that many 'desk' jobs will evolve dramatically over the next decade as AI rules OK? I have younger friends who are plumbers, electricians, beauticians they earn good money and I don't think they're likely to be usurped by AI.
It’s pathetic and sad that the discussion about university education has been whittled down to the money question. Once upon a time the university experience was about exposing oneself to other points of view, meeting people you might never have met, and learning a thing or two to expand one’s problem solving ability. It does not move the discussion forward in any meaningful manner by parsing it down to the money question. In fact it cheapens it. Sad to see this discussion taking place in the UK.
I agree that it's sad that so many people are judging a university education by how much it might add to your income. But having the discussion does allow other points to be raised as you've done. I think the university experience, certainly in the UK is different from a few decades back. There's definitely a difference in the quality of provision on offer. I regret the loss of polytechnics. I didn't see them as in any way inferior to universities. Now I think we do have many universities which are probably not offering as high a standard of teaching as others.
Yes I think it’s changed too. I also see that there are way more parents today that are persuading their kids to enrol at uni than a generation ago, and these kids really shouldn’t be there. Which is a real shame because there are so many alternatives kids can access these days; not everyone is right for uni, just as not everyone is right for Chef School. And these headlines suggesting costs should equal a good career is a distraction. There are so many aspects at play here. If anything what should be discussed, and debated, are how the standards have changed over the years, and how the knowledge gap has grown between high school graduation and first year post secondary. I know in the UK it might not be as bad as it is here in Canada, but it’s a discussion that’s long overdue.
Do keep in mind, though, that some of the "human capital" that universities produce is not due to academics, but due to a particular kind of socialization (mostly peer-to-peer) that happens in university.
Publishing earnings info for graduates is still useful even if it undervalues some socially useful degrees. Students taking on debt should be as informed as possible.
The government subsidy would also benefit as it may indicate where subsidies should be prioritized.
The financial value of a degree is an important but separate questions from the human capital versus signalling debate.
An alternative to standardized tests is internships. If several of these are spaced across a degree program employers will get a much better view of the human capital accumulation and students will get information on how employable they are.
If these students are not paid for the internship that’s a strong hint as to the financial value of their degree.
I would definitely be in favour of publishing earnings info, as transparency is useful. But if that is the only dataset you have it can end up being quite misleading.
I would expect this to be more than just avg income. It should include quartile info and geographic factors to ensure it provides enough data to be informed about the financial outcomes of a particular program.
In what ways would this be misleading?
In all the ways I mention in the piece! You wouldn't judge a hospital by how much the patients earn after 5 years!
I’m not sure the hospital comparison is so helpful. People do choose their post secondary path with the financial outcome in mind so judging which path to take is helped with good data.
As long as the data is rich enough they will be less misled about the financial outcome than without it.
Without this data people estimate financial outcomes based on a few examples or marketing.
Also people already take programs that they know have risky financial outcomes so I think people do know there are other factors to consider.
I think one way people can be misled would be if the data missed key information like drop out rate. But I’m assuming we get good reports designed by experts to inform people completing secondary school.
"People do choose their post secondary path with the financial outcome in mind ........."
I wonder when that started to be the accepted norm . Perhaps with the introduction of tuition fees.
Why would you think that? I could never imagine what would appeal about looking inside people’s mouths and inflicting pain except the deputy heads promise of riches. I did not follow his advice.
It's a good summary of the basic economics, which IMHO everyone should read. One small build on the "signalling" argument, is that a first from a demanding university is a signal not just of a bright 18yo add three years, but that person nailed their degree with diligence, planning, punctuality and big-game mentality, and those behaviours are useful to employers particularly in highly-paid jobs. The signalling is itself a form of human capital, because a less intelligent person would have incurred much greater cost to get a first, and therefore would be less likely to bother in the first place.
Rightly, this links to the questions of who should pay, how should it be structured, and how many people should attend. The theories are robust (there is both social and private benefit; there are both human capital and signalling benefits) but measurement of benefit is sketchy for the reasons you say.
A solution which perhaps you might cover, is to make universities have skin-in-the-game. Get the universities, or the pension funds of the admissions and teaching staff, to underwrite the costs of the student loan. Sure, the government provides the liquidity, but if you admit people that go on work in roles that aren't demanding, don't benefit from a degree, or don't work at all, and never repay, then you carry the can.