[sgdjgkeirj]

This is a good point. Caplan makes a huge deal about the fact that a students that drops out one semester before finishing the degree takes a huge penalty to their salary. This is what he calls the “sheep skin effect”. He claims that because such a student gets almost all of the education, their penalty must correspond to the signaling component.

But this is where his math runs against common sense. If you are an employer and see a student that dropped out of college without a very good reason, then that is a very strong negative signal. Even if you as an employer believe that education on its own provides valuable benefits to your employees, this does not mean you’d take a risk on someone that dropped out. There are sufficiently few of them that you can just not risk it.

[rrherr]

> If you are an employer and see a student that dropped out of college without a very good reason, then that is a very strong negative signal.

This is an argument for Caplan’s signaling theory, not against it. You literally said that whether or not a job applicant graduated is a very strong signal to employers.

[qqqwerty]

I think the term "negative signal" muddies the water here.

Caplan is walking on a bit of a tightrope. He is arguing that colleges provide minimal education benefits, and that its primary value is in the signaling provided by the degree.

But if Caplan is correct, why would someone drop out in their senior year? If the only real benefit is the degree, and if the degree comes with a lifetime of increased wages, surely a rational actor would stick it out. I think this is where his argument has some cracks.

The first possible explanation for the dropouts is that college provides additional value to society by filtering out those who can handle the process vs those who can't. This is "filtering" not "signaling". Caplan does not model this value to society anywhere. And second, is that it is likely that more learning (or life experience, or whatever) is happening at college than Caplan is giving credit for. i.e. if some students are dropping out of college, than that likely means some students are struggling (but succeeding) to graduate, and likely learning some valuable lessons in the process.

[isitmadeofglass]

> But if Caplan is correct, why would someone drop out in their senior year?

That doesn’t matter. We don’t have to walk the hypothetical parts along with one person. If your value increases linearly with education and there is no signaling effect, you could drop out 10min before graduation, and your salary would end up being the same as someone who went the last 10min and got the diploma.

Obviously that’s not the case. And some signaling is present, because people who do half a masters degree don’t end up making significantly more than those who stopped after the bachelors and got a job, because half a masters worth of learned experience isn’t even worth a fraction of half of the work of having the diploma.

[qqqwerty]

> If your value increases linearly with education

I am not assuming that at all. The requirements to get a diploma are more than just learning in class. It involves navigating a complex bureaucracy, long term planning, and a certain level of maturity. It is entirely possible that someone could plod along for 7 semesters while having no better chance at graduating than someone who dropped out in the first year. But someone who struggles in school but still manages to push through and get a degree has demonstrated a sufficient level of growth and maturity to warrant extra consideration from future employers. Caplan thinks the degree is a meritless signal, and he thinks his "sheepskin effect" analysis proves this. And I am saying that his "sheepskin effect" requires analysis data from the college dropouts, but the fact that college dropouts exist at all implies more social value to the degree than he lets on. In fairness, he does try and address the potential "ability bias" of the sheepskin effect in his book, but I found it not particularly convincing (the study he referenced controls for standardized test scores, which seem tautological as college students have already been "sorted" to a high degree by those same scores).

> And some signaling is present

I am not arguing that signaling is not present. I am arguing against Caplan's theory that +90% of the value of the degree is signaling. If you read his book, he spends some time explaining that the ratio of the value of "human capital" vs "signaling" of a college degree is a key factor in whether or not college has social value. He claims that college is almost entirely "signaling", and therefore has negative social value. And he tries to use his spreadsheet analysis about the "sheepskin effect" to prove this. But what we are saying in this thread is that he is hiding some ideologically driven assumptions in his analysis. Someone else hypothesized that the effect could be due to an inefficient hiring market. I am arguing that the obtaining the degree in and of it self is a merit worthy accomplishment valued highly by the market. And others still could argue that maybe job candidates do not post partial educational experiences on their resume for fear of negative signaling. All of these could be partially true, or none of these could be true. It doesn't really matter. They all are plausible arguments for why the sheepskin effect exists and their isn't sufficient evidence to disprove their plausibility.

Feel free to counter anything I said with ideological arguments. But be warned that doing so merely proves the point I am trying to make. The entire point of this thread was to figure out why no one audited Caplan's spreadsheet. The most common argument, was that the spreadsheet is irrelevant if the analysis was stitched together with ideological assumptions. Your math can be correct, but someone with a different world view will interpret the meaning of those numbers differently than you will. And some of us took a look at his spreadsheet, and instead of a "smoking gun" we got exactly what we expected. A bunch of squishy formulas using squishy data trying to control for squishy variables and at the end a fairly large leap in how to interpret the results.

[DangitBobby]

It provides more than one signal: a signal that you have obtained desireable knowledge and sensibilties from your education, and a signal that you can be relied on to complete something. The fact that the latter overshadows the former in a world where degree bearers are abundant is unsurprising and tells us precisey nothing we didn't already know.

[analog31]

Ah, but if Caplan's signaling hypothesis is true, it creates an arbitrage opportunity. I'm thinking hypothetically and in broad terms. Take that N-1 dropout. If that person is worth more to a business than their market wage, then a savvy business person would have a profit motive to hire them for more than their market wage, but less than their known value, resulting in a win for the worker and the employer.

A big enough employer could absorb these people with little fanfare, and use them to test the hypothesis. We read stories every day of business leaders who identify misconceptions in markets, and run with them to the bank.

Over time, this would in turn correct the wage gap.

[unholiness]

If his signaling hypothesis is true, employers are reading the signal correctly.

Someone who doesn't finish high school, without a good reason, in our society which says finishing high school is important... simply failed to finish. They're more likely to fail to finish other things. The rational free market views that negatively.

If we lived in a society which expected people to get a 12-year hula-hooping certificate by the age of 18, you'd expect those with the certificate to be more employable. The employers in that world aren't irrational, the society is.

[analog31]

Indeed, the question really boils down to what the signal symbolizes. I think the implication at the time was that it was an "empty" signal, in that the last semester of your education can't be the source for 100% of its value. Professional football and basketball teams are happy to hire you before you finish your degree, if you're any good. ;-)

Also, I don't know the extent to which this is an issue, but the US has a distinction between workers who have to be paid an hourly wage, and those who are "exempt," and one of the allowable criteria is whether the job requires a college degree. Comparing the value of hourly and salaried employees requires knowing how much they actually earn.

[isitmadeofglass]

You’ve just struck gold. This is the business model of a lot of Indian IT consulting businesses. No one cares about a master or bachelors degree when out-sourcing work, as long as the job gets done. But you can significantly lower the pay of such people even when they are way more experienced and better than even master grads.

[_y5hn]

Maybe the researcher should start successful businesses on their own to capitalize on their ideas?