What is the value added provided by your university degree? The common assumption is that the education you receive provides you with the skills that enable you to better perform in a workplace and increase your productivity. Higher productivity increases earnings in the labour market, and so the cost of tertiary education can be easily justified. This is an intuitive and comforting narrative, particularly for those scholars who choose to study the value of tertiary education, having themselves spent years of their lives accruing tertiary degrees. But is this entirely true?
A less discussed explanation is the signalling of personal traits to potential employers. There are two types of signalling relevant to tertiary education. One is demonstrating to an employer the skills and attitudes that were evident before the crucible of university. The second is using the reputation of the university to demonstrate understanding of a topic. (There is also of course a solid dose of social and personal growth, but that’s not discussed here).
Consider the first type of signalling. You are detail oriented and productive, you have good analytical and communication skills, you are good at maths, and you conform to a certain mould desirable in an office workplace. While you know this, potential employers do not. You sit through three years of your commerce degree, studying hard and getting good grades, not just to learn basic accounting and microeconomics, but to show a potential employer that you have the ability to do so. You are attempting to correct the information asymmetry between a job applicant and future employers. Once you get the job, you will be taught the practical skills needed to perform the task.
Think about a situation where class is cancelled. There is no replacement lecturer, no students up in arms because they will not learn that essential thing needed for their future productivity, nor are there complaints that they are not refunded a portion of their tuition. Why? The education content changes, the effect of signalling does not. The recognition is the same at the end, and you are still able to use the universities reputation to prove your worth.
The second form of signalling is more distinctive. Take a field like computer science or engineering, where the learned content is specifically applicable to future employment. The learned knowledge of a student who completes her degree will only be marginally higher than a student who drops out one semester early, yet comparing their earning potential and opportunities there is significant divergence. We can’t assume that that final capstone unit is the whole difference. The second student has learnt almost as much as the first, and the discount at which he must offer his labour in the market should more than correct for this. The difference is only in the signal provided by the qualitative grade and certification provided by the institution.
It is important to understand how important signalling is. If we assume that public funding of tertiary education is desirable insofar as it increases the productive capacity of workers, and thus society as a whole, then the extent to which signalling prevails results in a massive oversupply of education at the taxpayer’s expense. The burden on corporations to source suitable employees is shifted to the public purse, in part thanks to the subsidies which make this signalling a worthwhile proposition for students. At the same time, the opportunity cost to society and the individual is at least 3 years of productive work. The status quo also inhibits competition within the education sector. Perhaps some topics would be better self-taught, or with a private tutor, or some other solution the private market could find.