Thursday, October 9, 2008

skills to pay the bills - the college years

We've covered the importance of education, and the problems with our current public school education policy. Next up is the university level.

To begin, our universities truly are the envy of the world. That said, we aren't perfect. There are a few low-cost options: community colleges, online degree programs, and technical schools. But these alternatives are generally considered to be "second class" education with a very firm ceiling that rules out many well-paying careers.

In response, progressives have fixated on making it possible for every high school graduate to go full-time to a four-year college.

On one level this makes sense, even marginal college students can expect at least a 7% wage premium per year of college. This is because the bachelor's degree has achieved a majestical stature for students and for employers, signaling (at the least) a basic capacity to be trained (and eventually perform) in a high-value, well-paying profession.

There is nothing inherently wrong with a degree acting as a signaling device; we depend on just such signals for societal trust and exchange.

The problem is that the bachelor's degree is a very expensive signal, and there is reason to believe a very wasteful signal. And while it's not a societal problem if rich people want to spend their money on extravagant signalling, it is a societal problem when our anti-poverty program depends on subsidizing the poor's purchasing of this overpriced signal.

(This is what $60,000 apparently buys you! Apparently, they didn't budget for a decent sense of humor.)

In theory, this problem should resolve itself as firms exploit this opportunity by hiring and training smart high school graduates themselves for less than they would pay the college grads. That is indeed what has happened in India: at least one software company is thriving by hiring young professionals whom others disregard. They don’t look at colleges, degrees or grades, because not everyone in India is able to go to a top-ranked engineering school, but many are smart. The firm goes to poor high schools, and hires kids who are bright but are not going to college due to pressure to start making money right away. They train them, and in nine months, they produce at the level of college grads.

This is not occuring in the US, primarily because of a coordination problem.

Good future workers know they need to go to college to signal their ability to firms and firms know that they have a much higher chance of finding good future workers in the college group. Furthermore, employers are much less likely to have their competence called into question if a hire with a degree doesn’t work out than if they hire a worker without a degree (because of the correct perception of the low likelihood of that hire being a wise choise).

The question is how to credibly signal to good future workers that a four-year college degree isn’t necessary to be considered as a candidate and to convince firms that there are enough good future workers without a four-year college degree to make it a wise investment to include them in their employee search.

The challenge is to develop viable alternatives to the bachelor's degree that don't confer a 'second-class' status. I'd like to see the proliferation of shorter, no-frills academic programs that focus on teaching professional skills and testing relevant capacity (take a lesson from master's programs). In addition, I do believe that CPA-like exams for different professions (or areas of competency) will allow for a more fair and open competition.

There can be great value-added by a four-year liberal arts program, just as there can be value-added by a PHD or masters program; the problem is that the bachelors degree hasn't become an option for those so inclined, but a requirement for a well-paying job - and an expensive requirement at that.

It would be wonderful if we could afford to send every child to a four-year sleepaway camp, where they could sleepwalk through four years of classes (if they so chose) and receive a magic ticket to a well-paying job -- but that isn't the case.

There is a lot of fat to be cut and changes in educational philosophy to be made. Perhaps rethinking the well-manicured campuses and live lectures, for instance. The academic lecture, by the way, has its roots in the medieval training of theologians in a time when one-book-a-course for four years of schooling would cost about $1.6M in book outlays. Back then, it made economic sense to have a lecturer (from latin lector - reader) read from a single book aloud to a hall filled with students. Yet despite the fact that nowadays students could read the contents of a lecture in an instant at virtually no marginal cost, or even watch a video of the lecture -- the lecture remains at the foundation of university teaching.

Everyone in every occupation starts as an apprentice. This is as true of history professors and business executives as of chefs and welders.

The challenge is to make both our advanced schooling and our advanced signaling more efficient and thereby, more accessible. A proper long-term strategy is not to subsidize students' purchasing a $160,000 education, but to support the establishment of alternative means, be it CPA testing or shorter, low-cost advanced degree programs for students to prove their merit to potential employers.


Alex said...

Overall, this is a well thought out post. However, at least one question I have is how employee training program you propose (similar to those used in some parts of India) would work. Often, workforce development agencies who speak to small businesses/medium sized firms about hiring non-college grads express a common reservation: why invest in an employee who may acquire hard/soft skills at your firm only to leave for a better paying job at another firm. In short, in such a system of employer-based education/accreditation, there is a powerful incentive to free-ride (steal the newly trained, productive workers from a competitor by offering them a hire salary). Some workforce development agencies (I would recommend COWS out of the University of Wisconsin) have tried to find ways around these problems, through tax-credits and other incentives, but successes have been few and far between.

Also, this solution does not fundamentally address the problem of those who aren’t “smart enough” to go to college e.g., high school drop outs, etc. The stigma attached to certain classes of workers (or those looking for work in the labor market) are such that hiring a person with a BA in simply much easier and, given that college grads compete for employment, one assumes that employers tend to weed out the grads who coasted through college without learning how to think critically/to write from those who took their liberal arts education seriously. There’s an old (actually, I have no idea if it’s old) adage on Wall Street that says that you always hire the grads from Harvard/Yale etc because if they lose millions/billions of dollars of a large client’s money, the person who hired them can say, “what do you want from me? s/he went to (replace with Ivy League school of choice).” In short, while opening the education market to competitive forces is an important first step, real solutions would also require a fundamental cultural shift away from bias towards Ivy Leagues/elite small colleges/and the BA itself. The cultural shift would entail, amongst other things, a willingness to tackle big/powerful universities, a move away from lecture-based learning, which you outline (but which I have other issues with), a greater understanding of the barriers to education that the hard-to-employ/under-educated face, and a commitment, on the part of employers, to begin to bear some of the costs of training workers, which, given the cost of health care/other benefits, seems like a tall order. Nevertheless, the message and intent of this post is laudable and thought provoking.

Publius said...

thanks for the comment. i'll address your points in reverse order.

First, the problem of who aren't 'smart enough' to go to college was the subject of the post BEFORE in my mind. I strongly believe that the success of students in colleges is predicated on their earlier learning: this post should be seen as the second half of the post on primary/secondary education though, which covers that issue.

You are right that there is an elitist bias towards students who attended Ivy Leagues/elite small colleges/and the BA. The problem which I try to address in this post is how to develop an alternative means of assessing a worker’s capability, that isn’t so expensive. Other countries have turned to civil service exams (China), which I don’t think are a smart a idea. But I do think there is hope with night schools, online education, and educational-area specific testing. The challenge is to help these alternatives lose their “mail-in degree” reputations by ensuring there are very challenging programs and tests and available and that there value as a predictor of intellectual ability and future success is well articulated.

As far as the Wall Street adage on the Ivy League student – sure. Every prince’s son in the history of the world has enjoyed this same good fortune. I am less concerned with turning back this enduring trend, however, then the fact the Wall Street does not feel comfortable hiring someone without a BA. I don’t blame them, but we should take steps to address this coordination problem.

Re: “why invest in an employee who may acquire hard/soft skills at your firm only to leave for a better paying job at another firm.”
I think you understate the immense out of training that firms do “give away.” Anecdotally, most people I know are doing jobs that are only tangentially related to their schooling. Certainly, most weren’t hired on the notion they would be a productive worker the next day. The employer hired them because they believed they had the intellectual capacity, work ethic, and social skills to learn the business on the job. Even in the big money firms, the great whining sound of young employees is that they are indeed treated like apprentices … because they are.

So I look to schools to teach kids how to read, think critically, formulate coherent sentences, learn, and understand at least the basics of whatever area they are interested in.

Firms turn the young minds into workers, though.

All that said, I think the reason we don’t see firms hiring 18-year olds and training them like in India, or like they do 23-year olds, is the coordination problem I laid out in the post.