The foundation of the drive to increase educational attainmentacross the board is the human capital model of education, which began with the research of Gary Becker. The model suggests that increasing educational attainment causes increased prosperity by endowing students with increased skills. As a consequence, subsidies to education are seen as a positive investment that increases economic growth and creates spillover effects by improving civic engagement, happiness, health, etc.
Present value of learning, adjusted for forgetting
The simple human capital model tends to assume that knowledge is retained indefinitely, while a ubiquitous theme in educational interventions is that fadeout reliably occurs. To take a simple example, we may compute the present value of a marginal fact that increases a person's productivity by as:where is the discount rate used to compute the present value. If is $100 and is 5%, then the present value of learning is $2,000. But this is at odds with the concept of fadeout. To correct for this, assume that the probability density function for retaining follows an exponential distribution – with the corresponding survival function. Then the present value of learning, accounting for fadeout, is given by:Since the expected value of an exponential distribution is, we may tune this parameter based on assumptions about how long is retained. Below is a table showing what the present value is based on the expected retention time of the fact:
3 Months
6 Months
1 Year
2 Years
3 Years
5 Years
10 Years
$24.69
$48.78
$95.24
$181.82
$260.87
$400.00
$666.67
Regardless of the retention time assumption, the present value of learning is significantly reduced.
Signaling model
The main alternative to the human capital model of education is the signaling model of education. The idea of job market signaling through educational attainment goes back to the work of Michael Spence. The model Spence developed suggested that, even if a student did not gain any skills through an educational program, the program can still be useful so long as the signal from completing the program is correlated with traits that predict job performance. Throughout the book, Caplan details a series of observations that suggest a significant role for signaling in the return to education:
Intelligence and conscientiousness are known predictors of educational and occupational success, and are relatively stable throughout a person's life
International estimates of the effect of an additional year of education on national income are much lower than those estimating the impact of an additional year of education on personal income
Given the above signs of signaling, Caplan argues in Ch. 5–6 that the selfish return to education is greater than the social return to education, suggesting that greater educational attainment creates a negative externality. In other words, status is zero-sum; skill is not.
For many students, Caplan argues that most of the negative social return to pursuing further education comes from the incursion of student debt and lost employment opportunities for students who are unlikely to complete college. He suggests that these students would be better served by vocational education.
Policy recommendations
Caplan advocates two major policy responses to the problem of signaling in education:
The first recommendation is that government needs to sharply cut education funding, since public education spending in the United States across all levels tops $1 trillion annually. The second recommendation is to encourage greater vocational education, because students who are unlikely to succeed in college should develop practical skills to function in the labor market. Caplan argues for an increased emphasis on vocational education that is similar in nature to the systems in Germany and Switzerland.
* "I’m not sure he’s right, especially about education being almost entirely for the purpose of signaling, but goodness does he make a strong case. Agree with him or not, you’ll never look at the schools and colleges in quite the same way."
