Sunday, September 11, 2005

Greenspan on Education

As long as we are discussing the subjects of over- and under-education I think it's worthwhile to note Alan Greenspan's well-informed position on the subject. Many are arguing that the populous has too many BAs and too much BS. But consider the paths of wages for high school graduates and college graduates: they have diverged significantly since 1970. That is, the premium an employer will pay for a college education has been rising and keeps rising. The standard explanation for this is that technological development since 1970 has been biased in favor of those more educated. Indeed this is the reason that more and more 18-year-olds decide to go to college, the pay is better that way. This view suggests that the demand for college-educated labor, or at least technically-skilled labor, keeps expanding. In this case why should we be encouraging fewer people to go to college?

Greenspan's point is that this is a result of a major failure of America's education system. I don't know that this should be interpreted to mean that more and more people should go to college. Perhaps it just means that high schools should provide education much more suited to technology-intensive fields. But it does suggest that the blue-collar revolution that Paul Krugman predicts may be illusory (though you do see gardeners making very large sums of money) and also that there is something about a college education that keeps getting more and more valuable.

Perhaps that value is its usefulness as a signaling device. On the subject of signaling, which has also been discussed, I would just note one thing. As Isaac says, education-as-signaling is inefficient:
Given the amount of expense involved in all this unnecessary (from a purely economic point of view) education,
In the standard Spence model of signaling there are no human capital effects and nobody likes education. So it's "wasteful," but the signaling equilibrium with education is better than the pooling equilibrium where no one educates since everyone is paid their marginal product. It's a second-best world, but expenditures on education are not necessarily wasteful in so far as they help achieve a signaling equilibrium.


Blogger Isaac said...

Too true (about signalling). Though I think I made it clear that since there is nothing better than signalling, we'd remain with excessive amounts of higher education (signalling as a second best).

Under the credentialling argument, which I don't necessarily agree with, by the way (I just find the convergence of Bertram and Krugman interesting), you would observe a wage premium to college education. The existence of a continued wage premium doesn't say much: all it reinforces is stuff about the social construction of value...

5:03 AM  

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