Today at Cato Unbound, University College London economist (and James Heckman student) Pedro Carneiro replies to Murray’s claim that the value of a BA is vastly overblown. A sample:
Recent research shows that, empirically, the expected rate of return to college varies widely across individuals: as we expand college attendance we attract individuals which are increasingly less suitable to attend college, and which have lower expected returns to college than the ones who are already there. Nevertheless, these studies also show that most people can expect a relatively high return to college. Even if we take the most pessimistic estimates for the return to education for those outside the elite (who economists would call the marginal students), they are probably above 7% per year of college, and they are not lower for a year of a BA as opposed to a year of any other type of post-secondary schooling. Individuals for whom a BA degree is truly a bad idea are just not enrolling in college anyway. In fact, the best predictor of college enrollment, or of completion of a BA, is cognitive ability, and most individuals with low levels of cognitive ability end up never enrolling in college.
So, what’s the punch line? Murray is correct in stating that a BA is not for everyone, and may be right in saying that some people are wasting their time getting a BA, but for most of the population I doubt that the case he is making is of great importance. As he says, firms are not stupid, and will not pay for a BA degree if a BA is not teaching anything to their potential recruits. Similarly, I believe that individuals make mistakes, but at this level they are probably not as serious as Murray is implying. For most of those enrolling in college, a BA has a good expected return, but there is some risk.
Coming up on Friday: Bryan Caplan.
“As he says, firms are not stupid, and will not pay for a BA degree if a BA is not teaching anything to their potential recruits. “
This is a silly statement I’ve heard repeated multiple times. You don’t have to assume that firms or students are irrational to argue that the “BA is not teaching anything to their potential recruits.”
Theoretically, it’s pretty straightforward. Good future workers know they need to go to college to signal their ability to firms and firms know that they have a much higher chance of finding good future workers in the college group. Furthermore, employers are much less likely to have their competence called into question if a hire with a degree doesn’t work out than if they hire a worker without a degree (because of the correct perception of the low likelihood of that hire being a wise choise).
Turning to a hypothetical example, if college ended tomorrow, I am confident that firms would quickly snap up smart young men and women. At first, firms would still prefer candidates with a degree, and it would take about a year and some nice magazine features before they end up being able to sell to corporate that they can hire and train smarter 18-year-olds for less money and in place of 4-year colleges we’d have colleges more like master’s programs competing to show their value-added.
The question is how to credibly signal to good future workers that a four-year college degree isn’t necessary to be considered as a candidate and to convince firms that there are enough good future workers without a four-year college degree to make it a wise investment. This critical mass exists in some places outside the US. An Indian software company hires kids who are bright but are not going to college due to pressure to start making money right away. They train them, and in nine months, they produce at the level of college grads. Their resumes are not as marketable, they can code just as well as the rest. Often, better.
I’ll be writing up an overview of education shortly, and was interested in reading the opinions of this group. But I find the first quote to be repeated far too often.
There's an article buried somewhere on National Review explaining how college degrees suddenly became “mandatory” for the most unlikely entry level jobs as a result of lawsuits filed against employers who used apptitude tests (rather than educational credentials) to screen job candidates. Supposedly black and latino candidates weren't scoring as high and weren't getting hired and claimed discrimination etc etc . So, employers may not be as dazzled by a BA as you think…But since I work in the tech/entertainment world where a college degree is completely meaningless–the richest people I know are all self-taught in their particular area–I admit to being somewhat biased towards Mr. Murray's view.
I understand Dr. Murray's dissatisfaction with the BA system, but the system is set-up in such a way, it seems, that any party that defects will injure themselves. This hurts his argument, because he is arguing for a more practical system, but the party that follows his advice will not be acting in a practical, self-interested manner.
This is why in previous articles he has hinted that lower ability people would get a bigger financial return from trade school rather than college. But since that isn't true, his argument is a harder sell.
Similarly he argues that employers would do better with a CPA type of exam than going by a degree. This could be true (And in fact certain ridiculous anti-discrimination laws might be one reason the system is so inefficient). But it could also not be true, as Bryan Caplan suggests.
So if it hurts the young person to defect, and if it hurts the employer to defect, this makes Murray's pitch a hard sell. He needs to more fruitfully come up with a plan about how things can change. And that will require appealing to those with the power to change it that it is in their best interest to do so.
Specifically, if he could convince employers that an IQ test or a CPA type exam would be the legally safest, most efficient, and most profitable route, the value of the BA for the low ability person would indeed drop dramatically.
Unfortunately this would overwhelmingly help rich, smart people at the expense of poor, stupid people. (if the BA system truly is currently elevating tons of underqualified dumb people into the ranks of the middle and upper middle class). And this undercuts what I think Murray has always wanted: the best deal for the left half of the bell curve.
Bryan Caplan's response is close to what I said, as I thought it would be.
I disagree with Caplan though that employer decisions already prove the BA is a trustworthy signal. He has a naive Beckerish view on the efficiency of markets (e.g. employers who racially discriminate would go out of business). As far as I know, no employers have ever collected data on IQ tests vs. humanities degrees. I think it's very doubtful that college is screening out “lazy” people in such a way that college wage premium is maximally profitable.
It's a very real possibility that the whole inflated BA system is based on bad, inefficient. and costly selection decisions by employers. If employers are acting a certain way before there is data to justify it, then I think there is a good possibility that they aren't acting on some indirectly obtained knowledge, but on habit and tradition. This is why good data really can improve markets.
Also…
“You can try jawboning Microsoft into switching to certification tests. But can we really believe that Murray has seen a profit opportunity that Bill Gates hasn’t?”
Gates is notorious for relying on IQ tests, so this was a bad example. Also I don't know how important college is in MS hiring decisions, but I think it hasn't been denied yet that technical degrees like engineering actually do usefully signal job-applicable knowledge, unlike, e.g., an English degree.
Bryan Caplan's response is close to what I said, as I thought it would be.
I disagree with Caplan though that employer decisions already prove the BA is a trustworthy signal. He has a naive Beckerish view on the efficiency of markets (e.g. employers who racially discriminate would go out of business). As far as I know, no employers have ever collected data on IQ tests vs. humanities degrees. I think it's very doubtful that college is screening out “lazy” people in such a way that college wage premium is maximally profitable.
It's a very real possibility that the whole inflated BA system is based on bad, inefficient. and costly selection decisions by employers. If employers are acting a certain way before there is data to justify it, then I think there is a good possibility that they aren't acting on some indirectly obtained knowledge, but on habit and tradition. This is why good data really can improve markets.
Also…
“You can try jawboning Microsoft into switching to certification tests. But can we really believe that Murray has seen a profit opportunity that Bill Gates hasn’t?”
Gates is notorious for relying on IQ tests, so this was a bad example. Also I don't know how important college is in MS hiring decisions, but I think it hasn't been denied yet that technical degrees like engineering actually do usefully signal job-applicable knowledge, unlike, e.g., an English degree.