[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?