Economics of Education: Human Capital vs. Signaling
The Masterwork Assignment is designed to expose students to a more advanced Economic concept that is applicable to their lives and to encourage deeper critical thought and analysis. In order to express this thought and analysis, students will need to construct a short paper in order to express their viewpoints and opinions. These viewpoints are to be data-driven and researched with supporting evidence upon why they hold this position.
This semester the topic for the Masterwork Assignment is The Economics of Education: Human Capital vs. Signaling. The positional arguments regarding this are as follows: There is definitive evidence that on average individuals with a College Undergraduate Degree and higher (Master’s, Doctorate) earn more money over the long run than those who do not possess one. While there is little debate upon the return on investment of college-level education is this increase in value determined by students having gained additional knowledge during their learning process or by signaling to potential employers their ability to withstand the college learning experience.
Students will be debating that topic: Is the increase in earning potential from college due to additional knowledge gained during the educational period or due to signaling to potential employers that they are able to commit to a task over a multi-year period.
Following is a systematic guide to how to complete the assignment in the best way possible.
1) Access the primary source document for your research.
The primary source for this Semester is a podcast from the show EconTalk. In this podcast, the host Russ Roberts and presenter Bryan Caplan discuss Mr. Caplan’s book regarding signaling in education. Mr. Caplan will be making the argument in support of signaling being the primary reason college degrees earn more money and are to be considered an expert on the material.
EconTalk (Links to an external site.) (Links to an external site.) https://www.econtalk.org/bryan-caplan-on-college-signaling-and-human-capital/
2) While listening to the podcast, students should have a word document or other notation process available to them and be listening to answer the following guiding questions. Each guiding question in itself should consist of 4-5 sentences of response to ensure the student has fully grasped the answer to the question.
a. What is the earnings premium for college relative to high school, and how has it changed over time? What “psychological changes in the economy” have accounted for this change, according to Caplan?
b. In discussing the college premium, Roberts points out that the heterogeneity of the variables involved makes this figure problematic. Yet he still maintains that this figure can tell us something. What can it tell us, and what can we deduce from it?
c. Caplan analogizes the return to education with both marriage and bank loans. How does each compare to education? What other analogies might you suggest?
d. Caplan offers some suggestions for fruitful further research. In doing so, he poses the “puzzle” of why students are happy when their professor cancels the class. How would someone who believes in the human capital model explain this puzzle? The signaling model? Which one do you find more convincing with this example?
e. Throughout the interview, Roberts, and Caplan discuss labor economists’ typical rejection of the signaling model. Roberts challenges Caplan as follows:
“Here you have all this evidence that should have convinced all these labor economists. It hasn’t. Either they have a terrible confirmation bias…Or you do. And the information is not quite as decisive as it appears to you.”
What evidence does Caplan offer to buttress his point, and why do you think this hasn’t been accepted by most labor economists? To what extent is their rejection justified? Who suffers more confirmation bias
f. At the end of the interview, Caplan describes education as an “arms race.” What does he mean by this? To what extent is there a social return to education? Do you agree that “too many people go to college?” Explain.
g. In your opinion, should colleges offer refunds? If so, under what circumstances, and what exactly would they be refunding? If not, why not?
h. In your opinion, what could be the potential impact of student loan forgiveness or a publicly (government) paid college education on the value of a degree and its earning potential in the future?
3) Construction of paper
a. The thesis of the paper should establish if you support Caplan’s position that signaling is the primary reason for increases in earnings or if the opposing position is correct and attribute the increased earnings from other sources.
b. Once the student has determined their position, they are to research a minimum of two additional sources that will be used. At least one of these sources should be in opposition to their own current position.
c. The Paper will be in APA format, which is what is utilized in Economics for paper submission and must be submitted as a PDF. APA style formatting (Links to an external site. (Links to an external site.)
d. A guide to proper APA formatting of citations is included in this assignment. Proper citation is not optional and all external sources of information should be included. Many students forget to cite the podcast itself; this is an error that can be very costly!
e. The paper itself should be between 2-4 pages following APA format. You do not need an abstract due to the short nature of the paper.