Three theories of higher education

Getting an undergraduate degree is very costly. In America, the direct financial cost of attending a private university is typically in the hundreds of thousands of dollars. Even when tuition is cheap (or covered by scholarships), forgoing three to four years of salary and career progression is a large opportunity cost. There are a variety of reasons why students are willing to pay these costs, but the key one is that desirable employers highly value college degrees.

Why? The standard economic answer is that college classes teach skills which are relevant for doing jobs well: the “human capital” theory. But even a cursory comparison of college curricula to the actual jobs college graduates are hired for makes this idea seem suspicious. And private tutoring is so vastly more effective than classes that it’s very inefficient to learn primarily via the latter (especially now that many university courses are more expensive than even 1:1 tutoring, let alone AI tutoring).

Another answer is that attending college can be valuable for the sake of signaling desirable traits to employers. An early version of this model comes from Spence; more recently, Bryan Caplan has argued that most of the wage premium from going to college comes from signaling. In this post I’ll be engaging with Caplan’s version of the signaling hypothesis, as laid out in his book The Case Against Education.

Your university degree signals many things about your underlying characteristics, but Caplan claims that there are three traits employers prioritize above all others: “the trinity of intelligence, conscientiousness, and conformity”. This hypothesis purports to explain a number of important gaps in the human capital theory—e.g. why college students so quickly forget so much of the material covered in their courses after passing exams, why the rise of free online courses hasn’t changed the college landscape very much, and why finishing 90% of a degree is far less than 90% as valuable as completing the whole thing.

However, I think Caplan’s signaling theory is also wrong. In particular, his concept of conformity can’t be understood in standard economic terms. Instead, I’ll argue that we need a sociological explanation centered around group membership and group norms—which I’ll try to flesh out in a follow-up post. First, though, let’s engage with Caplan’s position, starting with the other two aspects of his trinity.

College attendance isn’t explained by intelligence or conscientiousness signaling

A key problem with Caplan’s trinity is that most of it is easily replaceable. Getting good grades at college does signal intelligence and conscientiousness, but these could be signaled far more easily and cheaply. It’s very easy to signal intelligence via test scores: IQ is surprisingly predictive of many other desirable cognitive traits. This need not require literal IQ tests—standardized tests like the SAT or GRE are highly correlated with intelligence. In other cases, companies use IQ-like tests (e.g. tech companies’ coding interviews). These are also significantly harder to cheat on than college courses.

Caplan acknowledges that college grades are far from the best way to signal intelligence; what he doesn’t discuss is that they’re even further from the best way to signal conscientiousness. If you asked people why they don’t just learn college material independently without paying for college, I expect that a common response would simply be “oh, I don’t have the discipline for that”. College provides external frameworks, timetables, local incentives, and social pressure for people who aren’t conscientious enough to learn without that.

So although doing well at college signals more conscientiousness than lazing about, an even better signal of conscientiousness would be acquiring all the same knowledge without attending college at all! In fact, people who are capable of learning college-level material independently should be going out of their way to avoid college lest they be confused for those who can only do it within a motivating social structure. Again, this hinges on the existence of high-quality testing services—but if conscientiousness signaling drove a significant proportion of the value of a college diploma, then providing such testing would be very profitable.

I’ll digress briefly to clarify a point that sometimes confuses people (including my past self). It’s common to talk about “costly signaling”, which involves incurring costs that would be prohibitive for people who don’t possess desirable traits. But costly signaling is just one type of “credible signaling”, aka signaling that is difficult to fake. Other types of credible signaling need not be expensive—IQ tests are an example of a very cheap but very credible signal.

By basic economic logic, people should prefer to do credible signaling in cheaper rather than more expensive ways. So any explanation of behavior in terms of costly signalling needs to explain why the system doesn’t gradually shift towards using cheaper credible signals. In Caplan’s account, that’s where the “conformity” part plays a big role.

I’ll explore in more detail what his account of conformity signaling is in the next section, and why I don’t think it succeeds. But I first want to note that the arguments above should already update our view of Caplan’s theory. If I’m right about how replaceable the functions of intelligence and conscientiousness signaling are in justifying college degrees, then even calling it a “signaling theory” of education is misleading. Instead what Caplan is defending is more accurately summarized as the “conformity signaling theory” of education, because that’s the part that’s justifying almost all of the cost of college compared with other possible signaling strategies. Analogously: if product A costs $10 and lets you do tasks X and Y, and product B costs $100 and lets you do tasks X, Y, and Z, then a good explanation for why “rational” people keep buying B needs to focus on the value of doing Z.

Of course, it’s hard enough to write a book about how college is for signaling; describing college attendance as being driven by conformity would be even more controversial. I don’t want to criticize Caplan too harshly for this omission, since he’s been more honest than almost any other academic about the ways in which higher education is a waste of time and money. And I don’t think he’s being deliberately deceptive. But my guess is that he flinched away from summarizing his theory as the “conformity signaling theory” of education because it would have received even more pushback than his “signaling theory”. I wish he hadn’t, though, because trying to pin down what conformity signaling is, and why employers purportedly value it, makes the holes in this theory clear.

College attendance isn’t explained by conformity signaling

Conformity signaling is more complicated than intelligence or conscientiousness signaling. Caplan spends half a dozen pages explaining it in the first chapter of The Case Against Education. I’ll describe his position in my own words here, starting with a quick note on what he doesn’t mean. Firstly, he doesn’t mean that students are signaling a general tendency to conform:

“Employers aren’t looking for workers who conform in some abstract sense… Hippies strive to look, talk, and act like fellow hippies. This doesn’t make unkempt hair and tie-dye shirts any less repugnant to employers. Employers are looking for people who conform to the folkways of today’s workplace—people who look, talk, and act like modern model workers.”

For now I’ll call this trait “conformity to professional norms”. You might then think that employers want to hire college graduates because they’ve learned professional norms during their degrees. But this would be a human capital explanation, whereas Caplan is clear that he’s focusing on a signaling explanation.^[1] So we can reconstruct Caplan’s signaling theory as instead claiming:

1. High school students vary in the underlying trait of how able and willing they are to conform to professional norms.
2. Going to (and succeeding at) university signals that you’re able and willing to conform to professional norms.

So far, this is a standard signaling explanation. We can debate how strong the correlation is between successful university attendance and workplace professionalism—I can see arguments in either direction. However, even if the former is a very good signal of the latter, there’s a more pressing issue: attending university is very costly compared with references or work trials or almost any other method of signaling professionalism. So Caplan needs to be able to explain why far cheaper methods of credibly signaling conformity to professional norms don’t develop.

This where his theory of conformity signaling becomes disanalogous to intelligence or conscientiousness signaling, by adding a third claim:

3. Conformity is the one thing that you can’t develop cheaper ways to signal, because doing new and unusual types of signaling itself demonstrates a lack of conformity.

Because of this, Caplan argues that university degrees are now “locked in” as the key signal of conformity. Anyone who tries to signal conformity to professional norms in other ways is outing themselves as weird and nonconformist, making their new signal self-defeating.

It’s a clever move from Caplan, but ultimately I think it’s conceptually confused. The core issue is that, even if “professionalism” requires some amount of “conformity”, they’re still distinct concepts. There are plenty of ways that rational employers should want their employees to be nonconformist—e.g. spotting new market opportunities before others do. There are also plenty of ways in which college students don’t mind signaling nonconformity with the business world: their avant-garde politics, their idiosyncratic hair and clothes, and often their nontraditional majors. If students were really spending years of their lives and hundreds of thousands of dollars primarily to signal conformity, shouldn’t they be picking much lower-hanging fruit first?

Indeed, there’s something suspicious about Caplan’s use of the term “conformity” at all. Why not just say that employers are looking for professionalism, and students are trying to signal professionalism? Adding the word “conform” is a verbal trick which proves too much: by Caplan’s logic any example of a person signaling that they follow norm X could be redescribed as “signaling conformity to norm X”, and then used to explain why they’re “locked in” to irrational behavior.

Finally, as Hanson notes: even if the idea of lock-in explains why a practice continues, it can’t explain why it started. In the past, only a small percentage of the population attended college, and it was perfectly normal to get a prestigious job without a college degree. What drove the rise of college in the first place? Whatever it was, that seems like it should be our default hypothesis for what’s driving the college wage premium today.

Explaining college requires sociological theories

To be clear, I do think there’s something important going on related to conformity. It just can’t be captured as part of a signaling framework—or any other economic framework—for at least two reasons.

Firstly, signaling is a framework under which rational agents pay costs to demonstrate pre-existing traits. But conforming is best understood as a process of internalizing deference to other people, i.e. making oneself less rational. Conformists can’t turn their conformity off when it might profit them—think of how many people decided not to invest in bitcoin, or scoffed at the possibility of rapid AI progress, because it sounded weird. They even internalize conformity on an emotional level—e.g. they often get angry at nonconformists (something which I expect Caplan has experienced many times). This is hard to model in economic terms.

A second problem with the idea of students signaling to employers is that employers are also better modeled as conforming rather than making rational choices. For example, Caplan claims that students don’t signal intelligence using standardized test scores because “putting high scores on your resume suggests you’re smart but socially inept. You’re doing something that’s 'simply not done.'” But firms could easily request standardized test scores from all applicants, alleviating each student’s fear of standing out.

More generally, when Caplan lists the traits that he thinks employers want, surprisingly few of them are directly related to employee productivity:

“What are modern model workers like? They’re team players. They’re deferential to superiors, but not slavish. They’re congenial toward coworkers but put business first. They dress and groom conservatively. They say nothing remotely racist or sexist, and they stay a mile away from anything construable as sexual harassment. Perhaps most importantly, they know and do what’s expected, even when articulating social norms is difficult or embarrassing. Employers don’t have to tell a modern model worker what’s socially acceptable case by case.”

Traits like employees’ appearances, political correctness, and ability to intuit social norms don't help much with the object-level work involved in most jobs. What they are relevant for is managing the company’s image—whether in the eyes of other employees, potential customers, or even government regulators. But even if this makes sense in isolation, we’ve now hypothesized a labor “market” in which everyone is nervously looking around at everyone else to try to avoid appearing weird. This is no longer an economic equilibrium in any reasonable sense. Instead, it’s a social equilibrium—albeit one with major economic implications—and we’ll need new concepts to model it.

In a follow-up post I’ll discuss some sociological theories of college attendance—most notably Bourdieu’s theory of higher education as a consecration of cultural elites. Unfortunately such theories have not been specified very rigorously. So I’ll also attempt to bridge the gap between economics and sociology by describing the formation of an elite class in game-theoretic terms.

1. ^{^}

   As a human capital explanation, the “learning professional norms” hypothesis also suffers from many of the issues of the “learning academic knowledge” hypothesis—e.g. the sheepskin effect. Additionally, there’s the question of who students are learning professional norms from. Academics are notoriously unbusinesslike in many ways; and if it’s other students, that raises the question of why the already-professional students they’re learning from don’t just go straight into the workforce.