The Value of College Degrees in the 21st Century

Howdy from Portland, OR,

Welcome to the 5 new subscribers from this past week.

Today, we're asking the question - what's the value of a college degree in today's labor market?

2 Economists Sit Down to Discuss the Value of 4-Year Degrees

Yesterday, George Mason economist Tyler Cowen published a conversation with Byron Auguste. Auguste is the co-founder/CEO of a nonprofit that seeks to expand access to career opportunities for folks without a bachelor's degree.

We are going to dissect one specific portion of Cowen and Auguste's conversation - the value of learning vs. signaling. Let's start with some definitions.

Value of learning - the net impact that the degree's curriculum has on the student (increased critical thinking, increased IQ, increased technical skill, increased conscientiousness)

Signaling - a market indication that a worker has preferable attributes which employers seek out of employees (the 4-year college degree itself acts as the signal)

(Bonus Variable) Networking - the folks who you interact with during your studies which can help contribute to the success of your career (peers, professors, recruiters, on-campus professional services)

We'll revisit networking later in the piece.

Here's where things get nuanced between learning vs. signaling: learning (critical thinking, intelligence, skill, and conscientiousness) is hard to measure. A signal is not hard to measure; it's simply a matter of if you completed the degree or not (easily verifiable by a 4-year institution.)

The question becomes, is the signal more valuable in the labor market than the absolute value of a student's true education?

Byron Auguste depicts himself as a "hands-on economist." He completed a B.A. in econ at Yale and an MPhil and DPhil at Oxford. He also previously served as the Deputy Director of the White House National Economic Council (NEC) from 2013-2015.

Let's jump to the dialogue.

Tyler posed the question, "If you think about the value of a typical four-year college degree, say, from a large state university in the United States, how much of that value, to you, is learning and how much is signaling or something else?"

In his response, Byron offers a scenario of 2 hypothetical students:

tl;dr signal > learning. A college degree signals that candidates are attractive (regardless of what they learned), the graduate is hired, and their on-the-job training (+ high-value career development) separates them from their peers who didn't obtain degrees and have less career development opportunities.

Byron Auguste pictured with Tyler Cowen (credit: Conversations with Tyler.)

What are the ramifications if the market rewards signaling over true learning?

3 effects caused by the market conditions from Cowen, Auguste, and myself.

From Cowen - Sheepskin Effect & Arbitrage Opportunity

Cowen asked, "You think it’s a market failure that the sheepskin effect is so pronounced in wages? The sheepskin effect meaning, someone who quits just short of finishing earns much less than someone who finishes.

Auguste responded that there were indeed companies that, "wouldn’t hire those individuals because they don’t have degrees, but those individuals are great problem-solvers...That’s an arbitrage opportunity, for sure."

tl;dr someone who didn't complete a degree but has some college credits/a higher level of conscientiousness, intelligence, etc.. is undervalued (cheap labor) in today's market

From Auguste - College = Sign of Affluence + Generational Wealth

Auguste on additional signals that a degree presents: "College right now is a signal of many things, but I think the statistics would say it’s a huge signal of affluence and generational wealth, being able to not only be prepared for the test to go into a selective college, and being able to complete it, having the social capital."

He goes on to say that, in order for them to complete their degree, some people "had to work, and they had to work a lot. If their work schedule doesn’t correspond to their class schedule, then maybe they can’t get the classes they need. They basically would have to go six, seven years. They run out of money. They might just plain run out of money. There are all sorts of family instability."

Auguste concludes, "In other words, I just don’t agree with the view that says that the reason most people who don’t complete college don’t complete it because of some Animal House behavior. I disagree. It’s mainly because of the economic and social conditions and what they have to do to manage the totality of life."

tl;dr not all people have the resources (time, money) to focus solely on their degree for four years, and this can inhibit their ability to graduate

From me - Market Failure & The Decline of Critical Thinking

It's time to loop the networking variable back in. It is entirely possible that a college student can attend a 4-year institution, barely get by, obtain the signal (the degree), leverage their network provided by the university, and set off on a lucrative career that is "successful" by American standards (financial metrics such as salary, equity, etc..)

But was that person ever intentional about pursuing their own intellectual interests, or are they now complying with the structured path put before them by a corporation? If so, did they ever take the lead on solving the problems that they want to solve?

If not, what is the cost of folks not pursuing their true interests or their true potential? I presume that there is both an individual cost on intrinsic happiness and a societal cost on the innovation we collectively lose out on.

It just bothers the heck out of me that we are operating an education system that does not incentivize the development of intellect, critical thinking, or conscientiousness - market failure at it's finest (or for society's sake, at it's worst.)

tl;dr we're rewarding people to do the minimum in college/rely on their social capital for employment instead of challenging themselves intellectually

Many thanks to my colleague, Kwame Som-Pimpong, for recommending this podcast episode to me.

The two people that helped make my college education possible, my mom and dad. Was the degree just a signal, or did I actually receive an education? The honest answer: I obtained both. Those cords are an aggressive amount of signal. Also, I'm biased, but I think the econ department at Elon University had the finest professors on-campus. They pushed my critical thinking and problem solving skills to new limits.

Photos of The Week

Location this past week: Olympic National Park, WA -> Portland, OR -> Eugene, OR -> Crater Lake National Park, OR -> Sisters, OR -> Portland, OR

Driving towards the sunset in Olympic National Park.

Caroline and the Pacific Ocean. We weren't sure we'd get her there, but we did it. This was my first time seeing the Pacific from the US after having previously seeing it from Asia.

Got to show my cousin Sarah's kids the van when I was in Washington. I don't have many physical belongings, but I make room for cowboy hats.

Checking out the selection of raspberries and tomatoes from the garden.

My nephew, Matt, looking like he's about to be the star detective in Holywood's next film noir with a riveting murder mystery plot.

Been staying with my sister, Jacquie, who lives in Portland, OR. We ripped Crater Lake. Here she is looking out at Wizard Island.

Crater Lake was created by a volcanic eruption and the collapse of Mount Mazama.

Thanks for reading

What did you think of today's piece? Would you like to see more writing on education?

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Josh

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