Wednesday, March 9, 2016

Why do educated people earn more?

Two answers: education signals your inherent quality vs. education increases your productivity


  1. The article explains the Disney rides without waiting in a long line; the wealthy customers already had this ability, fully sanctioned by the parks. The public at the park was upset with the rich people who hired tour guides and get the backdoor access, when they signed up as the tour guides., it could be a real problem to get to just the right places by certain times; the timed passes could end up being almost as problematic as the lines.
    On the other hand Disney discriminated against theme park visitors with developmental disabilities after altering its disability access policy. At one point Disney staff allowed wealthy people to skip to the front of long lines for rides and other attractions. Why the policy for those with special needs requires to receive a Disability Access Service card entitling them to schedule a return time., which is based on current wait times, for one park attraction at a time. Are wealthy people getting better service than those who are disable?
    All in all, if Disney is going to address the issue, they should do so from the perspective of leveling the playing field so that the “not so wealthy” and “un-disabled” can compete if they wish to.

  2. Honestly there is no rocket science as per why. I believe when one is educated, it just puts himself into more confident mood, but if one is lacking in knowledge then he will always be nervous, but of course it is also about skill levels which sometimes needs no barrier. As per been a Forex trader myself, I believe education helps fair bit and for me with having a broker like OctaFX, it is really cool due to their educational guide.

  3. In the United States it is difficult to get a high skilled job with a high school diploma. Most skilled jobs require some sort of college degree. There are jobs that non college degree holders can get but most of the the jobs that they can get are labor intensive or at a restaurant. They may also find jobs in a factory setting. In earlier years a high school diploma could get a person a more skilled job but now, since so many people are educated, many of them require degrees. Since there are so many people with degrees now, they keep adding levels of degrees to become a better asset in the market. Years ago an associates degree was a big deal, then a bachelors was the next biggest thing. Now many places are looking for a Masters, especially higher level jobs. After people get their foot in the door many workplaces offer tuition assistance programs because education is valuable to their company. This is also a way to promote employees.

    Walking in saying that you have a degree in an interview may get you a job because you’ve proved your dedication and work to get through the program. It proves a higher status rather than proving that you’ll be more productive. Even though you have a degree, you may not be very productive. Someone without a higher education may prove to be more productive because that is their only way to show that they can do the job to be promoted.

  4. The debate between Alex Tabarrok and Tyler Cowen was very interesting, and I tend to agree with Alex’s point of view in that having a degree is more of a signaling benefit than a skill building benefit in the beginning, but definitely agree with Tyler’s view in the long run. In order to get started in the job market, potential employees can signal to employers that they are hardworking, reliable and committed enough to earn a degree. This leads to more college graduates getting hired for jobs with higher pay. But, it is the employee's long term work record and performance that drives lifetime earnings.

    Alex uses an analogy of a peacock’s tail as an excellent example of signaling and argues that hundreds of thousands of years of natural selection couldn’t come up with better way to select a mate. However, this is a flawed analogy that doesn’t necessarily apply to the labor market. To be sure, the peacock’s tail is attractive to its mate and does lead to successful replication of the peacock’s genetic code, but the pretty tail doesn’t contribute any information towards the long term survivability of the offspring. Will the offspring be able to forage and survive on its own? Will it have the ingenuity to find new sources of food and escape predators? These questions lead us toward Tyler’s argument that education is a skill building benefit and not a signaling benefit. Let me explain:

    A job applicant with a college degree is a like a peacock with a pretty tail. He is attractive to the employers and has a higher probability of getting hired. However, his actual job performance after hiring will be the determining factor in his lifetime earning potential. Just because the employee has a piece of paper from a college that says “degree” on it, it doesn’t mean that he will be more productive in his job. The employee has to utilize the knowledge he gained while earning the degree in order to be more productive. The pretty peacock with the fancy tail, after he mates with his “employer”, he quits the job! Essentially, he only has to get through the hiring process and then he can move on to the next employer. No need to be a productive employee over the long term, he only has to worry about signaling the next peahen and getting hired. The human employee doesn’t have such a luxury. We actually have to perform in our jobs and be recognized for good performance in order to increase our earnings.


  5. I find this topic interesting and the arguments very compelling on both sides. I think the truth lies somewhere in the middle of these two arguments.

    In the real world, it is about signaling to employers that we are smart and have the ability to learn and work. In reality, most degrees prepare us to move into a career by teaching the basic fundamentals of our craft, because, the real learning takes place on the job. If you have no relevant work experience, then the way to stand out in the crowd is by signaling that you know how to function and perform in a stressful and demanding environment. It also shows that you have the ability to think critically and learn. These skills can then be applied in the workforce which make you more valuable to your employer. The more you learn at your job and the more proficient that you become, then the more you can earn in the long run. Without the higher education experience, it would be difficult to prove this basic tenant to employers and the more likely it is that you will be passed over.

    The other piece of higher education is the network that becomes available to alumni. I found it interesting that when the question was posed of preference to having a Harvard education vs a Harvard diploma there was no answer. I don't know of many people who would choose the education over the diploma. The mystique of the Harvard name carries way more weight than the actual education that you get. It is like the old adage of what do you call the guy who graduates last in their medical school class?.....Doctor. True a Harvard education is top notch and arguably one of the best, but the name of the school is way more valuable than the learnings that one takes out of it.

    So, for all of us finishing up our advanced degrees, I say study hard and start signaling once that paper is in your hand! That degree signals that you have learned to work hard and manage your time well.

  6. This was a pleasure to watch. The discussion between these two immensely passionate and charismatic academics was extremely thought provoking. My wife and I have had the discussion regarding college educations becoming the norm in society for some time now, both agreeing that it seems completely unnecessary for college to be the default step for all people after high school.

    I want to add my specific educational situation to this discussion, which by default falls squarely in the “signaling” point of view regarding higher education. I am a professional in the marketing field. Before marketing I was in the graphic design field for many years. I was able to complete my associates and bachelor degrees while working in the field. Now in marketing, I’ve embarked on completing an MBA.

    None of the degrees I’ve completed nor the current have anything to do with acquiring knowledge, social relationship building or anything of the like. The only reason I have pursued any of them is to signal to my employer, and potential future employers, of my dedication. I understand that my path in higher education isn’t necessarily the most widely taken, but there were plenty of other students at different points in their life who were undertaking the degree as a necessity for the purposes of learning.

    Therefore, in terms of higher education being a tool for learning versus a signal to others of willingness to complete a degree, I side firmly on the latter

  7. Higher education has become a necessity as much as it is a requirement. Even jobs that in the past were laborious and required certain skill sets have become technologically advanced through the use of computers and robotics, for which a tech education is often required. For job applicants with a higher education coupled with experience, there is more potential opportunity than applicants with less education or little to no experience. A candidate who effectively signals that they are better qualified for the job is usually successful. However, education does not guarantee productivity. I personally have worked with some very educated individuals who were not very productive, which is the reason they are former colleagues. Employers not only have a higher level of requirements, they also have higher expectations. The bottom line is profit and profit-per-employee is often calculated and monitored closely. Because employers have difficulty distinguishing between high and low-quality employees, they are faced with the problem of adverse selection. Employers who utilize a screening process to measure intangible qualities, get better results than employers who hire based on resume and interview alone. The Zappos and Amazon example in the textbook of successful screening through the “pay to quit” offer certainly separated the good from the bad – but after the process of hiring. Another example of successful screening, is administering a pop-quiz or survey in an effort to see how well informed potential candidates are on such items as current affairs or the economy. This can help eliminate potential low-quality employees prior to hiring.

    Should educated people earn more? The answer can be two-fold. Yes, because people who have taken several years to become educated have invested both time and money in their education in an effort to have a more prosperous future. However, education alone does not make people productive. Work ethic comes from values and integrity. Many hard working people may not have a higher education, but they possess higher qualities. I believe strongly in the value of life-long learning, which doesn’t always come from a classroom or textbook.

    Froeb, L. M., McCann, B. T., Shor, M., Ward, M. R., (2014). Managerial Economics, a Problem Solving Approach, 4th Edition. Boston, Massachusetts: Cengage Learning.

  8. Education is about both learning/skill building and signaling. Getting the credentials of a college degree is important.

    Companies are always looking to screen candidates to learn more about the potential employees to get hard working people who will best suit the company’s needs. Screening tools can include college degrees, grades, and extracurriculars both during college and beyond, which might include being on a board of directors or volunteering. A college degree allows job seekers to show potential employers that they are hard-working and willing to do extra work to achieve more. It signals to companies about who a worker is and the effort they will put into the job. A college degree is a successful screen for companies and a successful signal for job-seekers because it is not something that would be easy for potential employees to fake or mimic.

    Additionally, college is a time when people learn a lot. They learn more about themselves. They learn what their classes teach them. Furthermore, they learn to interact with both teachers and students on a different level. I agree that what you learn in school is about social context and authority. College is also about skill building. I could not do my profession as a journalist without classes in journalism (caveat: some of the best reporters I know from prior generations did not go to college, and they learned on the job).

    Education is a combination of learning more, building better skills, and signaling to potential companies.

  9. I found the topic and the debate between Tyler and Alex to be interesting and entertaining. They both brought up solid points for each side of the argument. The argument itself is similar to the chicken or the egg dilemma. Does an individual need the degree in order to be successful in our society? My initial inclination was to side with Alex in his view that the benefit of getting a degree lies in its value to signal to our society that you have a degree. Without the degree the ability to get ahead in our current environment is much more difficult, but not impossible. I can think of quite a few business people who have been tremendously successful but never completed college, such as Steve Jobs, Dave Thomas, Michael Dell, and Richard Branson. So it is possible to succeed at varying levels without a formal degree or education. I also agree with Tyler and his points around how the education you get provides you with the skills and abilities to become successful in our current work environment. The skills I picked up in college have helped dramatically as I entered the work force but have not always applied directly to the field I was working in. I lean more towards Alex’s argument for the reason that I have worked with so many people that have degrees in fields that they have never worked in and never will.

  10. I found this article interesting because I could directly relate to it. I have spent a large part of my career without a college education and I believe as a result, I was always proving what I could do first, then getting paid for what I can do second and long after I proved it.

    I have since received my Bachelor’s degree and am working on my MBA and I can already see my current employer and other companies interested in employing me more willing to pay me for what I can do prior to my proving that I can do it. This, to me, is a result of having a degree.

    What is the value of the degree? When you look at it from an adverse selection perspective, a degree is about minimizing the risk in your investment. While a large part of the argument in the video is about how smart you are, I think it is more about taking the risk on a person who may not have the drive and work ethic to do the job.

    But a degree usually demonstrates that you have put in the appropriate work to earn your Bachelor’s and Masters and these skills make up a large part of what employers are looking for.

    Without degrees it would be difficult for an employer to determine who is a high risk to hire and who is a low risk to hire. The degree is supposed to represent an employee with a lower risk.

    Until I got my degree, I could never make it through the automated resume screening process. It is clear that the systems are setup to look at people with degrees and drop the rest.

    Froeb et al (2014). Managerial Economics: A Problem Solving Approach. Australia: Cengage Learning.