The Value of School

There's an unexamined assumption in the previous post, an assumption that the point of school is at least partly to add to economic growth, i.e. to add economic value to the country and perhaps the world. I think that's true--"at least partly". Education ought to add to your ability to plan at least your personal economic future. Of course sometimes that doesn't work; Ohio State University research suggests that

Before the financial crash of 2008, it was highly educated Americans who were most likely to pile on unmanageable levels of debt...

So maybe Simon was right to sing Kodachrome

When I look back on all the crap I learned in high school,
It's a wonder I can think at all,
And though my lack of education hasn't hurt me none,
I can read the writing on the wall.

Still, it's true that education, indeed formal schooling, is strongly correlated with lifetime earnings. Does that measure the economic value of school? Well, no. There are actually three theories of that correlation; each of them is probably part of the truth. (Sez who? Sez me. Wait a minute here.)

Consider Joe and John. They both go to school and then get jobs at the local shoe factory. It happens that Joe is much smarter than John, he has a more positive outlook on life, he's taller and healthier and harder to discourage and finds it easier to get up in the morning and get somewhere on time...this was all true before they started kindergarten together (That doesn't mean it's genetic, either. Might be, might not.) Curiously, Joe does much better in French and algebra and world history ... and later he makes more money than John does, even though neither of them ever uses those courses again, and in their careers it happens that no employer ever looks at their educational records. Does this mean that those courses added human capital to both, but more to Joe? Maybe so, but it may only, or also, mean that there's an ability bias in the system: maybe Joe has more of what employers call "ability," including all the factors I mentioned and others besides -- and both educational attainment and income attainment are caused in part by "ability". Maybe. Maybe James, who has Joe's abilities but does very badly in school because he hates it, does just as well as Joe does -- and in fact going to school has no value at all, except that Joe enjoyed it.

Is ability bias part of the reason that more educated people get higher incomes? Well, some say no. I'd say, read Correcting For Ability Bias By Measuring Ability

The straightforward way to test for ability bias is to measure ability, then control for it. If this approach failed to reveal ability bias, it would be reasonable to dismiss it. In practice, though, the straightforward test finds ability bias to be not merely real, but large.

Now it happens that as Joe and John are retiring, the new shoe factory owner, whose name is George, notices the connection between their educational and vocational achievements, and finds that this is pretty common. He ignores James. He decides to hire academically bright kids like Joe right into management and pay them extra; he is going to use their educational level for signaling what value they will produce for him, and it turns out that this means he gets employees sorted out much quicker and they make more money and so does he -- even though some kids with high academics will perform poorly, and he may miss out on kids like James, so he does make mistakes. In this new world, income is even more strongly connected with education, and going to school now really is valuable to the student, but not because of anything school teaches.

What I'm talking about here is described by Bryan Caplan in Two Educational Heresies: Ability Bias vs. Signaling and then laid out as a table in Economic Models of Education: A Typology for Future Reference

Model	Effect of Education on Income	Effect of Education on Productivity	Notes
Pure Human Capital	WYSIWYG	WYSIWYG	Education may raise productivity by directly teaching job skills, but character formation, acculturation, etc. also count.
Pure Ability Bias	Zero	Zero	"Ability" includes not just pre-existing intelligence, but pre-existing character, acculturation, etc.  Pure Ability Bias is observationally equivalent to a Pure Consumption model of education.
Pure Signaling	WYSIWYG	Zero	Pure educational signaling can consist in (a) learning and retaining useless material, (b) learning but not retaining material regardless of usefulness, (c) simply wasting time in ways that less productive workers find relatively painful, leading to a positive correlation between education and productivity.
1/3 Pure Human Capital, 1/3 Pure Ability Bias, 1/3 Pure Signaling	2/3*WYSIWYG	1/3*WYSIWYG	A good starting position for agnostics.
.1 Pure Human Capital, .5 Pure Ability Bias, .4 Pure Signaling	.5*WYSIWYG	.1*WYSIWYG	My preferred point estimates.  I know they're extreme, but my book will explain my reasons and try to win you over.

 

I guess I'd better read the book.
Or then again, maybe not.