Strange salary premiums for college graduates and signalling

Bryan Caplan wrote another post defending the signaling model of higher education as opposed to the human capital explanation. To bolster his case he brings up the data that there is a salary premium associated with college education even for jobs that few would think people would have in mind when going to college.

I think Caplan’s conclusion in the post is mistaken. As is the signaling model as a whole. The model implies that every choice for getting higher education must be rational in the strong sense, i.e. in the sense that no mistakes are made about the need for education. Thus, to reconcile the model with reality, a very dubious assumption is made that people go to college just to get the diploma, and, more importantly, that employers hire college graduates only on the basis of the signal provided by their diplomas.

First, if the assumption of strong rationality of consumers is relaxed, one may have lots of explanations why students may choose to go for it, beside the clearly erroneous one that they just all go for it for the guaranteed specific job skills. They might even take this road for fundamentally uncertain goals. Some students quite probably choose college to try to understand what they want in life. Others might just be after the nice experience that it now often offers. Still others might really want to get knowledge of certain subjects. So even if the diploma works only as a signal, the college-goers may not choose college only (or even primarily) for the signal. 

Secondly, the data Caplan invokes only support his case on the employer side if interpreted as saying that college graduates immediately get higher pay in the relevant occupations than their degree-less colleagues. And Caplan provides no reason to think that it is so. Thus, it might well be that people with college education get pay raises later because they really do on average work better than their degree-less colleagues. Either because they actually acquire useful skills in college, or, more plausibly, just because they are more competitive from the start.  


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