Two Kitten Torturing Models of Wage Differentials
Suppose you read a blog post that started like this:
It is well known that if you run a regression analysis of wages, you will find that if a person tortured kittens as a teenager, then he or she will have significantly lower earnings in the marketplace.
Now there are two schools of thought when it comes to explaining this outcome. One is the kitten torturing human capital theory, which says that people who torture kittens as teenagers degrade their inner moral compass, and thus reduce their productivity. Thus, it shouldn’t surprise us that employers pay kitten torturers less than they pay other workers.
The other explanation is the kitten torturing signaling theory, which says that kitten torturing per se doesn’t directly impact productivity, but the type of person who tortures kittens is also not likely to be a team player in the office. Thus, it shouldn’t surprise us that employers pay kitten torturers less than they pay other workers….
Isn’t it obvious that there is something odd going on here? Employers don’t know if someone tortured kittens as a teenager; that’s not on a criminal record (usually?) and nobody puts it on his resume. So clearly the second school of thought–the signaling model–can’t be what’s going on, because you can’t use a “signal” that is invisible to everyone.
On the other hand, the first school of thought doesn’t necessarily seem right, either. Maybe people start out with a screwed up moral compass (or maybe they are damaged by abuse), and then the kitten torturing as a teenager is just a symptom of something deeper.
It seems then that there is room for a third school of thought, which says: There is a strong negative correlation between kitten torturing and low productivity in conventional jobs, meaning that if employers have a tendency to pay workers their marginal product, then we will observe a strong negative correlation between kitten torturing and wages.
It’s the part I put in bold that seems absent from Bryan Caplan’s series of musings on this issue. For example, in his most recent post (drawing on his forthcoming book) he writes:
To weigh the power of human capital versus signaling, however, we must zero in on occupations with little or no plausible connection to traditional academic curricula. Despite many debatable cases, there are common occupations that workers clearly don’t learn in school. Almost no one goes to high school to become a bartender, cashier, cook, janitor, security guard, or waiter. No one goes to a four-year college to prepare for such jobs. Yet as Table 4.6 shows, the labor market comfortably rewards bartenders, cashiers, cooks, janitors, security guards, and waiters for both high school diplomas and college degrees.
But it seems to me Bryan has missed out on a better explanation: It’s not that their degrees are “signals” of their productivity. Rather, the college grads who get paid more as cashiers, cooks, janitors, security guards, and waiters are getting paid more because they are directly observable to be more productive (in general) than the ones who don’t have college degrees.
There are certain occupations where it’s not easy to assess “marginal revenue product” the way we assume in introductory textbooks. The employer can’t just draw his nice curves and find the tangency point.
But it’s pretty obvious after a week or two whether someone hired as a cook, or a janitor, is worth the wage he is getting paid. Maybe security guard or cashier is a grayer area, because you’re not sure if the former is sleeping on the job or if the latter is figuring out ways to let his friends buy stuff for free.
But as far as cook and janitor, there’s no “signaling” needed. It might help someone get his foot in the door, but that’s not really the explanation for the person’s consistently higher pay, any more than a fancy-looking resume could explain it. If it happens to be the case (and I have no reason to doubt Bryan’s data) that cooks with college degrees get paid more than cooks without college degrees, I endorse neither the human capital nor the signaling model to explain this result. Rather, I would say there is a correlation between the type of person who gets a college degree and a good cook, versus the type of person who doesn’t get a college degree, and that employers in this industry can readily observe productivity and thus pay cooks accordingly.
NOTE: I’m not “blowing up” Bryan’s post. He has obviously read way more of this literature than I have. My modest point is that his contrast between the human capital versus signaling models of education often seems to me, to artificially force the world into two categories that are not exhaustive of the possibilities.
Bob,
If your explanation is right, then why do people spend so much time and money on getting a college degree? That seems to be part of what the human capital and signaling theories seek to explain, which seems to be absent from your account.
So people go to college because they want to get a higher-paying job as a waiter? I’m not sure that’s what happens.
I’m not trying to explain the degree premium in general, rather I’m trying to explain it for the specific occupations Bryan is talking about here.
As a kid, I use to play hockey with garden snakes. No of any correlation studies with anything?
And you’re self-employed.
How were you able to get skates on the snakes?
A+
‘nobody puts it on his resume”
You haven’t read many resumes I see.
Yes, the third perspective is ability bias. Bryan discusses the triptych here http://econlog.econlib.org/archives/2012/10/economic_models_1.html
I looked at your link, Alex, and then even the prior one (linked in that post). It would be helpful if Bryan defined “ability bias.” I never learned that term in school (which is fine, because I’m trying to land a job waiting tables at Olive Garden).
Ability bias=selection effect.
Not sure what the technical term for this would be, but what if the employers know that the college-degree-having janitors might have both the desire to quit (and work in the field they studied) and the ability to earn higher wages in said field.
If you’re employing a janitor with an engineering degree, and he’s a great janitor, you might be inclined to give him a raise to induce him to stick around, solely because that engineering degree increases the competition for his labor. Whereas if you have another janitor who is just as productive, but has no degree, he has fewer options and is far less likely to leave you for a higher paying job, so you see no need to give him a raise.
I don’t think your post is at all responsive to Bryan_Caplan’s:
1) The other two models *also* assume that workers get paid their marginal product: the very question at issue is *why* the marginal revenue product is higher for college grads.
2) Bryan_Caplan’s post is not to defend the signalling model in general, but to show why it is more consistent with a wage premium than the capital model.
3) You’re agreeing with his point — that employers can observe productivity in the kinds of jobs he cites, but this can’t be explained by human capital accumulation in college; it’s just that in other jobs, where it’s harder to observe, you need the signaling theory to explain why employers go with higher estimates of employee value when they have to guess.
What if I told you that signalling theory is only valid to the extent that there is an established relationship between the two variables apart from signalling, such as the human capital theory?
For example, if it were the case that university/college education tended to persistently lead to lower productivity, then it would make sense if the “signalling theory” predicted that having no degree makes you a more attractive worker.
After all, to “signal” something is to communicate what’s already in existence. Unfortunately, signalling theory has been stripped and decoupled from its original motivation, and has become a field of study all its own, where signalling qua signalling is supposed to be an explanation for real world phenomena.
It reminds me of Heidegger’s concept of “Being”. He took a predicate of subjects and made it into a subject itself. I believe the same sort of thing happened with signalling theory.
1) No, they don’t. You are saying yourself (at 3) it’s hard to observe the productivity of the employees, so how could you just assume this is being done without explanation? The only way is to assume the signalling explanation from the beggining also, which is begging the question.
2) You (and Bryan, if he is doing this) are crazy if you start defending some position just because “it is more consistent” with the data, even knowing that position is wrong.
3) See 1.
while the employer cannot observe kitten torture, one might think that there is a “type” of person who tortures, and this is a trait that hinders your prospects.
this is the same idea behind “learning” and signalling. you cannot observe learning directly, but school signals a “type” of person that would be beneficial for business.
“Bartenders with B.A.s will outearn bartenders without B.A.s. Why?”
Simple. Bartenders with B.A.s typically were bartenders during college as well, providing a few years to gain the skills necessary to be a more productive bartender. Thus, they will, on average, earn more as bartenders post-college.
NEXT!
Why are we operating on the assumption – false though we know it to be – that people with college degrees only differ from high school graduates by that single piece of data?
Throw in some fire starting and bed wetting and you will have the Macdonald triad.
Caplan too often tries to be contrarian and cutesy clever. Steve Landesburg does the same thing, and he did do it with that dreadful book More Sex is Safer Sex. Note to Steve: when guys are introduced to sex and a condom, the immediate thing they want to do is lose the condom.
” it’s pretty obvious after a week or two whether someone hired as a cook, or a janitor, is worth the wage he is getting paid”. I am not sure it is so easy. It may be easy to see if they are worth whatever someone else will do the job for, but unless you know the marginal product of the janitor, how do you know?
I happen to be a cook myself, and I’ve also hired and managed cooks and waitresses for years, and I can say definitively that I (sample size alert, obviously, but how many lives of experience am I meant to have?) have never consciously been “signaled” by anyone’s educational credentials. Relevant experience, yes, but education no.
Also, a quibble, but: people most certainly *do* get four-year degrees to prepare them to be cooks.
Darien,
Also, a quibble, but: people most certainly *do* get four-year degrees to prepare them to be cooks.
BTW, I was worried that our discussion was coming off as patronizing; I hope that isn’t the case. I know for example that some waiters in NYC made more than me last year.
When you say the above, though, are you referring to explicit cooking programs? Or are you saying someone might get a BA in Anthropology, knowing he intends to be a cook for his career?
It came off confident.