Skip to main content

Education: Is It Just Signaling?

By
Image: kennysarmy
Around this time every year, one begins to notice a marked shift in the demeanor of students everywhere. Following a grueling period of studying and exams, we emerge from our rooms, battle-scarred yet relieved. Summer, once hopelessly distant, is now nearly within our grasp. 

Some of what we have learnt and, by now, no doubt forgotten, may seem just a bit impractical. It is true that outside very specific career paths, it is supremely unlikely many of us will have to identify the production quantity at which a natural monopoly achieves allocative efficiency. (It’s where price is equal to marginal cost, for anyone wondering!) 

Why, then, do we work so hard to learn material we may never use again? There is, of course, a deep satisfaction that comes with learning. Yet apart from that, there is also a fundamental economic concept at play.  

Whether consciously or not, all of us taking APs, IBs, DSEs, or another one of the alphabet soup of tests, are involved in what economists call signaling. 

A “signal,” in the economic sense, is credible information that one party transfers, about itself, to another. The concept of signaling was developed by Nobel Prize-winning economist Michael Spence, who formulated a model for signaling in the job market. 

Spence noted that there exists asymmetric information in the labor market. In other words, prospective employers do not have perfect information about job applicants. Faced with a lineup of nearly identical individuals, it is impossible for an employer to determine who possesses the greatest ability.  

This is where signaling comes in. A job applicant can convey a piece of relevant information, a signal, to the prospective employer to demonstrate ability. Education is one such signal. For the signal to be effective, the employer must be able to establish that there is a strong correlation between high levels of education and high levels of ability in the workplace. 

The key in this model is that the education attained does not need to have any practical value in the job. Instead, the mere fact that one has achieved a certain standard of education is enough. Those who are of low general ability will be much less likely to have procured a particular degree than those of high general ability. 

It is obvious that a computer science degree is a reliable signal that one can perform well in a computer-related career. What is more interesting about signaling, is that even having a degree in an unrelated subject can be an effective signal as it communicates a certain standard of performance. 

As we take exam after exam and involve ourselves in a variety of extracurricular activities,  we too are signaling. In our case, most of us are interested in signaling to colleges that we have the tenacity, intellectual ability, and curiosity, among other traits, that are required to succeed. 

We impose a cost on ourselves by subjecting our minds to arduous study of calculus, history, chemistry—you name it. The fact that we are usually able to handle this cost and be successful in our exams is a testament to our general work ethic and academic ability. The specifics of what we learn matter slightly less.

It is worth noting, however, that in today’s ever more competitive world, the costs of signaling are rising. For example, no longer does an ordinary bachelor’s degree serve as an effective signal of competence. With tertiary education becoming incredibly common, the presence of an undergraduate degree is conveying less and less useful information to employers. 

Nevertheless, the next time you find yourself struggling through difficult but seemingly “pointless” work, do rest assured—your efforts will not go unrecognized. 


A version of this article also appeared in the South China Morning Post's Young Post on Thursday, May 19. http://yp.scmp.com/news/features/article/103489/dses-economics-signal-employers-youre-hireable


Comments

Post a Comment

Popular posts from this blog

On Myanmar

By
This is adapted from a paper I wrote for my Comparative Politics class at Harvard . A Friendless People Thousands have been killed. Hundreds of thousands have fled. They are a people without a home, much less a state. Such is the plight of the Rohingya, whom a UN spokesperson once called the most friendless people in the world. The United Nations High Commissioner for Human Rights has called the situation a “textbook example of ethnic cleansing” (“UN”). This latest wave of state-sponsored violence follows a series of attacks by militants—a small insurgent group, the Arakan Rohingya Salvation Army (ARSA)—in August on Myanmarese military outposts. The brutal military crackdown is ostensibly targeted at insurgents. Yet, it is unmistakably civilians who are bearing the brunt of the violence, with the UN High Commissioner calling the response “clearly disproportionate” and “without regard for basic principles of international law” (“UN”). The approach of ethnic institutionalism...
Post a Comment
Read more

Harmony in the Middle Kingdom

By
Image: Wikimedia Commons The four decades since Deng Xiaoping spearheaded “Reform and Opening Up” in China have seen growth on a scale unparalleled in modern history. Where hundreds of millions were once destitute, extreme poverty has been all but cast into the annals of history; the world competes to attract the wealth of China’s burgeoning middle and upper classes. Analyses of the country's explosive growth are aplenty. Real GDP has grown 64-fold, literacy is above 95%, and in a once Communist country the private sector, at least on paper, now accounts for 60 percent of economic activity. This piece, however, will look more at the stability of the country—while analysing potential economic factors underpinning this. A number of scholars predicted political and economic instability in China as nation rapidly became prosperous. Yet, in a country transformed, political and economic durability remain. The Chinese Community Party continues to enjoy high levels of popular leg...
Post a Comment
Read more

Where Lurks the Next Crisis?

By
Photo: SCMP Optimism flows freely through the markets today. Asset prices are at record highs: investors are happier than ever to throw money at barely profitable technology companies, debt issuances from dubious companies and volatile governments, and anything blockchain related—from Bitcoin to Ethereum to Insanecoin, which does actually exist.     Most observers think that the coin mania is a bubble waiting to burst. But bears have been calling the whole market a bubble for a while, predicting an end to the years-long economic recovery and stock market boom. The old joke goes that economists have called seven of the last two recessions. It still rings true. Doomsayers have been convinced of a market crash since the post-recession recovery had barely gotten on its legs. But with things as they are today, are we on a path toward crisis?   I will not engage in the perilous business of trying to predict when the next economic downturn or market tumble will occ...
Post a Comment
Read more