Ethics @ Work: Does it pay to go to college?

It is worth pointing out that mandatory army service provides excellent opportunities for both signaling and networking.

education 311 (photo credit: Marc Israel Sellem)
education 311
(photo credit: Marc Israel Sellem)
Few people contest the truism that Israel is a country with large income inequalities. Indeed, the gaps are in so many areas that some economists, such as Prof. Eran Yashiv of Tel Aviv University, refer to the Israeli labor market as a dual labor market, with separate and virtually independent labor markets for skilled and unskilled labor.
It is also little disputed that the main factor distinguishing the two labor markets is education. The figures show that educated workers have much higher rates of employment; when they are employed, they have much higher salaries. Beyond the dry statistics, educated people are much more likely to be employed in pleasant jobs where they work regular hours in air-conditioned offices.
Does that mean that to increase productivity Israel should invest more in education so that more labor-market participants will belong to the higher-productivity, higher-employment, higher-satisfaction job market? That is the prescription based on the traditional economic understanding of higher education, which is that it imparts specific useful skills, which economists call “human capital.”
But not everyone is convinced. There has been an active debate in the economics profession and in the blogosphere whether these figures really say anything about the return to education.
If you don’t learn anything in college, why do people who go there seem to be so much more successful in life? One possibility is that smart people go to college, and smart people are more employable; there is only correlation, with no causation.
A related, more subtle possibility, analyzed in detail in a famous paper by economist Michael Spence decades ago, is that college is a way of proving to employers how smart and capable you are. Perhaps you are just as clever and able at 18 when you start college as you are at 22 when you finish, but employers can only be sure after they see that you survived four years of finals, term papers and endless cups of coffee. Economists call this “signaling.”
Or maybe the academic and social challenges foster a trusting relationship with fellow students, who will be in a position to help you later in your career.
This is what we usually call “networking” and what social scientists often call “social capital.”
Sometimes the practical distinctions are not so great. If a country doesn’t have a lot of colleges, maybe it should build some – if only to give young people a way to prove their mettle. And what do we care if the advantage youngsters get there is in the form of human capital or social capital? But in a developed country the distinction could be critical. If college is good mostly for signaling, and adequate opportunities for proving your ability already exist, sending more people to college won’t help matters at all. It could even make things worse by making it more difficult for employers to separate the wheat from the chaff.
It can be very hard to find the natural experiment that finds the return to the actual education you get in college. Ideally you would choose a bunch of people who don’t really want to go to college and randomly make some of them go.
But that is seldom tried. Some clever efforts have been made to find similar circumstances.
For instance, young men whose “lottery” numbers made them eligible for the Vietnam draft went to college more than other young men who were otherwise identical: to benefit from the educational deferment. Most of these studies show that people who go to college, even if only to avoid the draft or because they were chosen for some special program, still enjoy much better earnings prospects.
I don’t know of any similar studies that have been done in Israel. But it is worth pointing out that mandatory army service provides excellent opportunities for both signaling and networking. Many army units are extremely selective, and many jobs, especially combat service, give others an opportunity to see how you perform under fire (literally).
It seems to me that since the IDF provides signaling and networking opportunities, and yet clearly people with a college education get ahead here, then Israeli colleges must be providing valuable skills.
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Asher Meir is research director at the Business Ethics Center of Jerusalem, an independent institute in the Jerusalem College of Technology (Machon Lev).