Let me first say that I am not an economist. However, I was having a discussion with one of my friends who claimed that he had absolutely no gain from his education other than it actually being the ticket for him to get a job. He argued that he hardly ever used any of the stuff he had learned during his education. So while it was a formel requirement for him to have some kind of education to gain entry at the firm where he is currently working, he sincerely believed that his education did not make him a better worker in any way.

I must admit I was a bit offended. I love my own job and I maybe also have some idealistic notions on behalf of education that it can both make us better as humans as well as help us work in better ways. However, I think that what most annoyed me was that I could see he had point and still felt that economists must have some kind of counter argument against this notion that education is basically valueless. So my question is:

Do there exist in economics a serious discussion along these lines?

and furthermore, if that is the case,

What are the main arguments on behalf of those arguing that education certainly has its economic merits?


1 Answer 1


Yes, this debate actually exists in economics. There are two main arguments why education increases wages:

  1. Theory of Human Capital: This is theory that posits that education is an investment that is virtually analogous to investment in regular capital goods. You pay for your education (pay for capital), education makes you more productive (and wages critically depend on productivity) hence afterwards you get higher wages (return to your human capital). This theory was first developed by Becker (see Becker, 1980), it got a bit more nuanced since then but since you state you are non-economist I will not go more deeper into the arcana.  This is basically 'your' view of education.

  2. Signaling/Screening Theory: This theory posits that education is a sort of screening device (signal) for employers about your innate ability and does not necessarily builds up your human capital. If you are unable to pay attention, memorize stuff, be able to coherently reason you will not get good grades and graduate and likely not be a good employee either. This theory was developed by Spence (1973) and later expanded Stiglitz (1975) - also the same caveat as above applies. This is basically 'your friends' view.

Now the above theories are not mutually exclusive as they can be both true at the same time. Education can be both a screening device and productivity enhancer. In fact empirically most of the time they both will be present. This being said it is an empirical question which one dominates and answers will differ from field to field. I think it is fair to say that most empirical evidence shows that education increases wages via human capital accumulation, but this is not true for every field.

For example, Hussey (2012) shows empirical evidence that when it comes to MBA degrees most increase in graduate wages was due to screening not human capital (although returns to human capital are present too). Again I think most economists would say that education contributes more to wages via human capital accumulation but the example above illustrates that this is not universally true and has to be empirically tested. It might very well be that your friend is just from an industry where screening is more important than human capital.

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    $\begingroup$ Education as signaling/screening---where, in a separating equilibrium, high type gets higher wage---is due earlier to Spence (1973 QJE), no? Stiglitz (1975 AER) considers the distributional effect of that signaling. $\endgroup$
    – Michael
    Dec 18, 2020 at 21:59
  • $\begingroup$ @Michael oh I always thought this was Stiglitz since he done most of the work on signaling but evidently I was mistaken, thanks for pointing this out I have edited the answer $\endgroup$
    – 1muflon1
    Dec 18, 2020 at 22:08
  • $\begingroup$ I offer you no grandiose theories or citations of academic studies only my experience. I was a math major in undergrad. While college taught me valuable skills such as how to learn, logical thinking, problem solving, time management, etc., there's hardly anything that my academic knowledge and degree was useful in the long run other than getting me into graduate school in the field of healthcare. I'd offer that perhaps 1/2 of what I then had to learn in grad school there was useless in my career. $\endgroup$ Dec 20, 2020 at 2:04

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