Graduating in a Recession Can Be Rough

This relates to yesterday's post "The Class of 2020 Looks for Work." That post has links to other related posts.

By Alex Tabarrok of Marginal Revolution.

"Graduating in a recession can be rough. Wages start lower and advance more slowly. It’s hard to get hired at a top firm which means it takes longer to get on a rapid ascent career path. As Till von Wachter notes in a review of the long-term consequences of initial labor market conditions, failure to takeoff leads to choices which often makes things worse.

…initial labor market conditions persistently increases excessive alcohol consumption (Maclean 2015) and leads to higher obesity and more smoking and drinking in middle age (Cutler, Huang, and Lleras-Muney 2015)…College graduates entering during the 1980s recession experience higher incidence of heart attacks in middle age (Maclean 2013). Following all labor market entrants from these cohorts, Schwandt and von Wachter (2020) find that starting in their late 30s, unlucky entrants begin experiencing a gap in mortality compared to luckier peers that keeps increasing in their 40s, driven by higher rates of heart disease, liver disease, lung cancer, and drug overdoses.

…Marital patterns of unlucky cohorts are affected from the time they enter the labor market up into middle age, when these cohorts have fewer children (Currie and Schwandt 2014), are more likely to have experienced a divorce, and are more likely to live on their own (Schwandt and von Wachter 2020). Initial labor market conditions also have been found to have effects on attitudes towards economic success and the role of the government (Giuliano and Spilimbergo 2014) and to lead to increasingly lowering individuals’ self esteem (Maclean and Hill 2015).

Don Peck had a good popular survey of these effects in The Atlantic in 2010 that remains vital:

Andrew Oswald, an economist at the University of Warwick, in the U.K., and a pioneer in the field of happiness studies, says no other circumstance produces a larger decline in mental health and well-being than being involuntarily out of work for six months or more. It is the worst thing that can happen, he says, equivalent to the death of a spouse, and “a kind of bereavement” in its own right. Only a small fraction of the decline can be tied directly to losing a paycheck, Oswald says; most of it appears to be the result of a tarnished identity and a loss of self-worth. Unemployment leaves psychological scars that remain even after work is found again, and, because the happiness of husbands and the happiness of wives are usually closely related, the misery spreads throughout the home.

Especially in middle-aged men, long accustomed to the routine of the office or factory, unemployment seems to produce a crippling disorientation. At a series of workshops for the unemployed that I attended around Philadelphia last fall, the participants were overwhelmingly male, and the men in particular described the erosion of their identities, the isolation of being jobless, and the indignities of downward mobility.

Of course, most people who graduate during a recession do just fine in the grand scheme of things.You could have graduated in Sierra Leone. But if you want to be on a rapid ascent career path remember that your first job is not your last job, look for opportunity, and be prepared to take a risk and switch jobs early. Stay off drugs and alcohol."

The Class of 2020 Looks for Work

Months after graduating into one of the most challenging job markets in generations, many are still searching for that first gig. Few openings emerge in retail or marketing; there are bright spots in tech.

By Ellen Byron of The WSJ. Excerpts:

"This spring, when many were graduating from college, unemployment for 20- to 24-year-olds was above 20%, according to the Labor Department, compared with the low teens for all age groups."

"Not since the Great Depression have so many young adults lived with their parents. In July, 52% of young adults ages 18 to 29 years old resided with one or both of their parents, surpassing the previous peak in 1940, according to a Pew Research Center analysis of Census Bureau data."

"Employment prospects for the Class of 2020 vary greatly depending on the job sector graduates are in. Insurance, scientific research and information technology are hiring and young people in those sectors are finding work. Small to midsize computer-services companies said they expect to hire 70% more new graduates this academic year over the year earlier period, according to the Michigan State study, and scientific-research companies said that hiring will be up 20% over the same period.

Meanwhile, those seeking jobs in retail, travel and the leisure and hospitality industries are having a much tougher time. The Michigan State study found that advertising, marketing and public-relations companies say hiring will be down 15% this year."

"One increasingly popular option for members of the Class of 2020 who can afford it: putting off the job search by staying in school. Suzanne Ortega, president of the Council of Graduate Schools, says many of the approximately 500 colleges and universities who are members of her Washington, D.C.-based organization reported “healthy” increases in enrollment as early as this past summer."

Related posts:

Historically, college students who graduate into a recession have settled for lower-paying jobs at less prestigious companies

Has The Recession Been Hard On College Graduates?

How Recessions Affect Young People

The Economic Behavior Of Trees In Forrests

It seems like they produce and trade with each other, even across species. Are trees and the fungi being selfish or altruistic? Adam Smith and Thomas Malthus make an appearance.

See The Social Life of Forests: Trees appear to communicate and cooperate through subterranean networks of fungi. What are they sharing with one another? by Ferris Jabr of The NY Times. It highlights research by Suzanne Simard, a professor of forest ecology at the University of British Columbia. Excerpts:

"Underground, trees and fungi form partnerships known as mycorrhizas: Threadlike fungi envelop and fuse with tree roots, helping them extract water and nutrients like phosphorus and nitrogen in exchange for some of the carbon-rich sugars the trees make through photosynthesis. Research had demonstrated that mycorrhizas also connected plants to one another and that these associations might be ecologically important, but most scientists had studied them in greenhouses and laboratories, not in the wild."

"By analyzing the DNA in root tips and tracing the movement of molecules through underground conduits, Simard has discovered that fungal threads link nearly every tree in a forest — even trees of different species. Carbon, water, nutrients, alarm signals and hormones can pass from tree to tree through these subterranean circuits. Resources tend to flow from the oldest and biggest trees to the youngest and smallest. Chemical alarm signals generated by one tree prepare nearby trees for danger. Seedlings severed from the forest’s underground lifelines are much more likely to die than their networked counterparts. And if a tree is on the brink of death, it sometimes bequeaths a substantial share of its carbon to its neighbors."

"Since Darwin, biologists have emphasized the perspective of the individual. They have stressed the perpetual contest among discrete species, the struggle of each organism to survive and reproduce within a given population and, underlying it all, the single-minded ambitions of selfish genes. Now and then, however, some scientists have advocated, sometimes controversially, for a greater focus on cooperation over self-interest and on the emergent properties of living systems rather than their units."

"An old-growth forest is neither an assemblage of stoic organisms tolerating one another’s presence nor a merciless battle royale: It’s a vast, ancient and intricate society. There is conflict in a forest, but there is also negotiation, reciprocity and perhaps even selflessness. The trees, understory plants, fungi and microbes in a forest are so thoroughly connected, communicative and codependent that some scientists have described them as superorganisms. Recent research suggests that mycorrhizal networks also perfuse prairies, grasslands, chaparral and Arctic tundra — essentially everywhere there is life on land. Together, these symbiotic partners knit Earth’s soils into nearly contiguous living networks of unfathomable scale and complexity."

"Mycorrhizal networks were abundant in North America’s forests. Most trees were generalists, forming symbioses with dozens to hundreds of fungal species. In one study of six Douglas fir stands measuring about 10,000 square feet each, almost all the trees were connected underground by no more than three degrees of separation; one especially large and old tree was linked to 47 other trees and projected to be connected to at least 250 more; and seedlings that had full access to the fungal network were 26 percent more likely to survive than those that did not.

Depending on the species involved, mycorrhizas supplied trees and other plants with up to 40 percent of the nitrogen they received from the environment and as much as 50 percent of the water they needed to survive. Below ground, trees traded between 10 and 40 percent of the carbon stored in their roots. When Douglas fir seedlings were stripped of their leaves and thus likely to die, they transferred stress signals and a substantial sum of carbon to nearby ponderosa pine, which subsequently accelerated their production of defensive enzymes. Simard also found that denuding a harvested forest of all trees, ferns, herbs and shrubs — a common forestry practice — did not always improve the survival and growth of newly planted trees. In some cases, it was harmful."

"Many were perplexed as to why trees of different species would help one another at their own expense — an extraordinary level of altruism that seemed to contradict the core tenets of Darwinian evolution."

"It’s now well accepted that resources travel among trees and other plants connected by mycorrhizal networks. Most ecologists also agree that the amount of carbon exchanged among trees is sufficient to benefit seedlings, as well as older trees that are injured, entirely shaded or severely stressed, but researchers still debate whether shuttled carbon makes a meaningful difference to healthy adult trees. On a more fundamental level, it remains unclear exactly why resources are exchanged among trees in the first place, especially when those trees are not closely related. 

In their autobiographies, Charles Darwin and Alfred Russel Wallace each credited Thomas Malthus as a key inspiration for their independent formulations of evolution by natural selection. Malthus’s 1798 essay on population helped the naturalists understand that all living creatures were locked into a ceaseless contest for limited natural resources. Darwin was also influenced by Adam Smith, who believed that societal order and efficiency could emerge from competition among inherently selfish individuals in a free market. Similarly, the planet’s dazzling diversity of species and their intricate relationships, Darwin would show, emerged from inevitable processes of competition and selection, rather than divine craftsmanship. “Darwin’s theory of evolution by natural selection is obviously 19th-century capitalism writ large,” wrote the evolutionary biologist Richard Lewontin.  

As Darwin well knew, however, ruthless competition was not the only way that organisms interacted. Ants and bees died to protect their colonies. Vampire bats regurgitated blood to prevent one another from starving. Vervet monkeys and prairie dogs cried out to warn their peers of predators, even when doing so put them at risk. At one point Darwin worried that such selflessness would be “fatal” to his theory. In subsequent centuries, as evolutionary biology and genetics matured, scientists converged on a resolution to this paradox: Behavior that appeared to be altruistic was often just another manifestation of selfish genes — a phenomenon known as kin selection. Members of tight-knit social groups typically share large portions of their DNA, so when one individual sacrifices for another, it is still indirectly spreading its own genes.

Kin selection cannot account for the apparent interspecies selflessness of trees, however — a practice that verges on socialism. Some scientists have proposed a familiar alternative explanation: Perhaps what appears to be generosity among trees is actually selfish manipulation by fungi. Descriptions of Simard’s work sometimes give the impression that mycorrhizal networks are inert conduits that exist primarily for the mutual benefit of trees, but the thousands of species of fungi that link trees are living creatures with their own drives and needs. If a plant relinquishes carbon to fungi on its roots, why would those fungi passively transmit the carbon to another plant rather than using it for their own purposes? Maybe they don’t. Perhaps the fungi exert some control: What looks like one tree donating food to another may be a result of fungi redistributing accumulated resources to promote themselves and their favorite partners.

“Where some scientists see a big cooperative collective, I see reciprocal exploitation,” said Toby Kiers, a professor of evolutionary biology at Vrije Universiteit Amsterdam. “Both parties may benefit, but they also constantly struggle to maximize their individual payoff.”"

"plants and symbiotic fungi reward and punish each other with what are essentially trade deals and embargoes, and that mycorrhizal networks can increase conflict among plants. In some experiments, fungi have withheld nutrients from stingy plants and strategically diverted phosphorous to resource-poor areas where they can demand high fees from desperate plants." 

"Some researchers have proposed that cooperation within or among species can evolve if it helps one population outcompete another — an altruistic forest community outlasting a selfish one, for example. The theory remains unpopular with most biologists, who regard natural selection above the level of the individual to be evolutionarily unstable and exceedingly rare. Recently, however, inspired by research on microbiomes, some scientists have argued that the traditional concept of an individual organism needs rethinking and that multicellular creatures and their symbiotic microbes should be regarded as cohesive units of natural selection. Even if the same exact set of microbial associates is not passed vertically from generation to generation, the functional relationships between an animal or plant species and its entourage of microorganisms persist — much like the mycorrhizal networks in an old-growth forest. Humans are not the only species that inherits the infrastructure of past communities."

[At a mycorrhizal network] "She handed me a thin strip of root the length of a pencil from which sprouted numerous rootlets still woolly with dirt. The rootlets branched into even thinner filaments. As I strained to see the fine details, I realized that the very tips of the smallest fibers looked as though they’d been capped with bits of wax. Those gummy white nodules, Simard explained, were mycorrhizal fungi that had colonized the pine’s roots. They were the hubs from which root and fungus cast their intertwined cables through the soil, opening channels for trade and communication, linking individual trees into federations. This was the very fabric of the forest — the foundation of some of the most populous and complex societies on Earth."

"Five hundred million years ago, as both plants and fungi continued oozing out of the sea and onto land, they encountered wide expanses of barren rock and impoverished soil. Plants could spin sunlight into sugar for energy, but they had trouble extracting mineral nutrients from the earth. Fungi were in the opposite predicament. Had they remained separate, their early attempts at colonization might have faltered or failed. Instead, these two castaways — members of entirely different kingdoms of life — formed an intimate partnership. Together they spread across the continents, transformed rock into rich soil and filled the atmosphere with oxygen.

Eventually, different types of plants and fungi evolved more specialized symbioses. Forests expanded and diversified, both above- and below ground. What one tree produced was no longer confined to itself and its symbiotic partners. Shuttled through buried networks of root and fungus, the water, food and information in a forest began traveling greater distances and in more complex patterns than ever before. Over the eons, through the compounded effects of symbiosis and coevolution, forests developed a kind of circulatory system. Trees and fungi were once small, unacquainted ocean expats, still slick with seawater, searching for new opportunities. Together, they became a collective life form of unprecedented might and magnanimity."

Conflicting opinions from economists on the value of giving gifts

The battle seems to be over inefficiency (spending money on items others might not want) vs. the idea that if you spent money on someone it is a believable signal that they care about you or having a relationship with you. A program on PBS recently stated that one of the more common gifts that King Henry the VIII got at Christmas was money.

See Holiday shopping? Consider the most economically efficient gift of all: cash, and avoid the deadweight loss of Christmas by Mark J. Perry. Excerpt:

"2. In a 1993 American Economic Review article “The Deadweight Loss of Christmas,” Yale economist Joel Waldfogel concluded that holiday gift-giving destroys a significant portion of the retail value of the gifts given. Reason? The best outcome that gift-givers can achieve is to duplicate the choices that the gift-recipient would have made on his or her own with the cash-equivalent of the gift. In reality, it’s highly certain that many gifts given will not perfectly match the recipient’s own personal tastes and preferences, or it might be the wrong size, color, or style.  

In those cases, the recipient will be worse off with the sub-optimal gift selected by the gift-giver than if the recipient was given cash and allowed to choose his or her own gift. Because many Christmas/holiday gifts are mismatched with the preferences of the recipients, Waldfogel concludes that holiday gift-giving generates a significant economic “deadweight loss” of between one-tenth and one-third of the retail value of the gifts purchased."

See Gift Giving Is Better for Society than Economists Think by Michael Thomas Tony and Anthony Gill. Excerpt:

"A newcomer often is welcomed into a household with a large feast containing more food than can be reasonably consumed. Engagement and wedding rings are expensive signals of a prospective spouse’s fidelity in good times and bad. Clubs, fraternities, and religious organizations often require individuals to go through rigorous rituals to prove their loyalty before gaining the benefits that full membership entails.

So it is with gift giving for holidays and other occasions. Giving gifts, even ones filled with the deadweight loss of mismatched preferences, indicates that one is willing to forego resources in the present in order to maintain a relationship in the future. When times get tough for you, I will assure you that I will be there to sacrifice again. Knowing that I am willing to sacrifice for you makes you more willing to want to continue engaging with me. Your reciprocal sacrifice helps solidify the mutual trust to make a relationship work effectively.

Societies around the world have ritualized these times of “burnt offerings” as a way of communicating trust and a desire to enter into, or remain in, a social network. We learn to gift within our families in the hope that such generosity will translate itself in the broader society.

Gifting: The Gift that Keeps on Giving

Prof. Waldfogel and other economists who rue the inefficiency of holiday gift giving only see the costs and benefits in static terms. The real benefits are dynamic and embedded in the deadweight losses, ironically. By continually showing, through gifts small and large, our willingness to sacrifice for one another we build a cultural fabric of trust and willingness to assist in times of need. Norms of sacrifice, trust, and graciousness are crucial for the functioning of broad-based markets over long periods of time. Our willingness to give and to reciprocate graciously when receiving is what makes us wealthier over time."

Related posts:

Is Christmas Gift Giving Inefficient?

Are Homemade Gifts Better Or More Special?

What Melvin Anthropologist Konner Fails To See When He Criticizes Economists And Their Views On Gift Giving 

"Ask medieval historian Michael McCormick what year was the worst to be alive, and he's got an answer: "536." Not 1349, when the Black Death wiped out half of Europe. Not 1918, when the flu killed 50 million to 100 million people, mostly young adults. But 536. In Europe, "It was the beginning of one of the worst periods to be alive, if not the worst year," says McCormick, a historian and archaeologist who chairs the Harvard University Initiative for the Science of the Human Past.

A mysterious fog plunged Europe, the Middle East, and parts of Asia into darkness, day and night—for 18 months. "For the sun gave forth its light without brightness, like the moon, during the whole year," wrote Byzantine historian Procopius. Temperatures in the summer of 536 fell 1.5°C to 2.5°C, initiating the coldest decade in the past 2300 years. Snow fell that summer in China; crops failed; people starved. The Irish chronicles record "a failure of bread from the years 536–539." Then, in 541, bubonic plague struck the Roman port of Pelusium, in Egypt. What came to be called the Plague of Justinian spread rapidly, wiping out one-third to one-half of the population of the eastern Roman Empire and hastening its collapse, McCormick says.

Historians have long known that the middle of the sixth century was a dark hour in what used to be called the Dark Ages, but the source of the mysterious clouds has long been a puzzle."

 ""a cataclysmic volcanic eruption in Iceland spewed ash across the Northern Hemisphere early in 536. Two other massive eruptions followed, in 540 and 547."

"the summers around the year 540 were unusually cold"

"When a volcano erupts, it spews sulfur, bismuth, and other substances high into the atmosphere, where they form an aerosol veil that reflects the sun's light back into space, cooling the planet."

"A century later, after several more eruptions, the ice record signals better news: the lead spike in 640. Silver was smelted from lead ore, so the lead is a sign that the precious metal was in demand in an economy rebounding from the blow a century before, says archaeologist Christopher Loveluck of the University of Nottingham in the United Kingdom. A second lead peak, in 660, marks a major infusion of silver into the emergent medieval economy. It suggests gold had become scarce as trade increased, forcing a shift to silver as the monetary standard, Loveluck and his colleagues write in Antiquity. "It shows the rise of the merchant class for the first time," he says."" 

Is There Economic And Political Meaning In "The Wizard of Oz?"

To get a handle on this, you can read Money and Politics in the Land of Oz By Quentin P. Taylor.  Below is an excerpt from the Taylor paper:

"Dorothy, the protagonist of the story, represents an individualized ideal of the American people. She is each of us at our best-kind but self-respecting, guileless but levelheaded, wholesome but plucky. She is akin to Everyman, or, in modern parlance, “the girl next door.” Dorothy lives in Kansas, where virtually everything-the treeless prairie, the sun-beaten grass, the paint-stripped house, even Aunt Em and Uncle Henry-is a dull, drab, lifeless gray. This grim depiction reflects the forlorn condition of Kansas in the late 1880s and early 1890s, when a combination of scorching droughts, severe winters, and an invasion of grasshoppers reduced the prairie to an uninhabitable wasteland. The result for farmers and all who depended on agriculture for their livelihood was devastating. Many ascribed their misfortune to the natural elements, called it quits, and moved on. Others blamed the hard times on bankers, the railroads, and various middlemen who seemed to profit at the farmers’ expense. Angry victims of the Kansas calamity also took aim at the politicians, who often appeared indifferent to their plight. Around these economic and political grievances, the Populist movement coalesced.

In the late 1880s and early 1890s, Populism spread rapidly throughout the Midwest and into the South, but Kansas was always the site of its most popular and radical elements. In 1890, Populist candidates began winning seats in state legislatures and Congress, and two years later Populists in Kansas gained control of the lower house of the state assembly, elected a Populist governor, and sent a Populist to the U.S. Senate. The twister that carries Dorothy to Oz symbolizes the Populist cyclone that swept across Kansas in the early 1890s. Baum was not the first to use the metaphor. Mary E. Lease, a fire-breathing Populist orator, was often referred to as the “Kansas Cyclone,” and the free-silver movement was often likened to a political whirlwind that had taken the nation by storm. Although Dorothy does not stand for Lease, Baum did give her (in the stage version) the last name “Gale”-a further pun on the cyclone metaphor.

The name of Dorothy’s canine companion, Toto, is also a pun, a play on teetotaler. Prohibitionists were among the Populists’ most faithful allies, and the Populist hope William Jennings Bryan was himself a “dry.” As Dorothy embarks on the Yellow Brick Road, Toto trots “soberly” behind her, just as the Prohibitionists soberly followed the Populists.

When Dorothy’s twister-tossed house comes to rest in Oz, it lands squarely on the wicked Witch of the East, killing her instantly. The startled girl emerges from the abode to find herself in a strange land of remarkable beauty, whose inhabitants, the diminutive Munchkins, rejoice at the death of the Witch. The Witch represents eastern financial-industrial interests and their gold-standard political allies, the main targets of Populist venom. Midwestern farmers often blamed their woes on the nefarious practices of Wall Street bankers and the captains of industry, whom they believed were engaged in a conspiracy to “enslave” the “little people,” just as the Witch of the East had enslaved the Munchkins. Populists viewed establishment politicians, including presidents, as helpless pawns or willing accomplices. Had not President Cleveland bowed to eastern bankers by repealing the Silver Purchase Act in 1893, thus further restricting much-needed credit? Had not McKinley (prompted by the wealthy industrialist Mark Hanna) made the gold standard the centerpiece of his campaign against Bryan and free silver?"

Now an excerpt from an economics textbook by Irivin B. Tucker:

"Gold is always a fascinating story: The Wonderful Wizard of Oz was first published in 1900 and this children's tale has been interpreted as an allegory for political and economic events of the 1890s. For example, the Yellow Brick Road represents the gold standard, Oz in the title is an abbreviation for ounce, Dorothy is the naive public, Emerald City symbolizes Washington, D.C., the Tin Woodman represents the industrial worker, the Scarecrow is the farmer, and the Cyclone is a metaphor for a political revolution. In the end, Dorothy discovers magical powers in her silver shoes (changed to ruby in the 1939 film) to find her way home and not the fallacy of the Yellow Brick Road. Although the author of the story, L. Frank Baum, never stated it was his intention, it can be argued that the issue of the story concerns the election of 1896. Democratic presidential nominee William Jennings Bryan (the Cowardly Lion) supported fixing the value of the dollar to both gold and silver (bimetallism), but Republican William McKinley (the Wicked Witch) advocated using only the gold standard. Since McKinley won, the United States remained on the Yellow Brick Road."

But not everyone agrees with this. Economist Bradley Hansen wrote an article titled The Fable of the Allegory: The Wizard of Oz in Economics in the Journal of Economic Education in 2002. Here is his conclusion:

"Rockoff noted that the empirical evidence that Baum wrote The Wonderful Wizard of Oz as an allegory was slim, but he compared an allegorical interpretation to a model and suggested that “economists should not have any difficulty accepting, at least provisionally, an elegant but controversial model” (Rockoff 1990, 757). He was right—we did not have any difficulty accepting it. Despite Rockoff’s warning, we appear to have accepted the story wholeheartedly rather than provisionally, simply because of its elegance. It is as difficult to prove that The Wonderful Wizard of Oz was not a monetary allegory as it is to prove that it was. In the end, we will never know for certain what Baum was thinking when he wrote the book. I suggest that the vast majority of the evidence weighs heavily against the allegorical interpretation. It should be remembered that no record exists that Baum ever acknowledged any political meanings in the story and that no one even suggested such an interpretation until the 1960s. There certainly does not seem to be sufficient evidence to overwhelm Baum’s explicit statement in the introduction of The Wonderful Wizard of Oz that his sole purpose was to entertain children and not to impress upon them some moral. The Wonderful Wizard of Oz is a great story. Telling students that the Populist movement was like The Wonderful Wizard of Oz does seem to catch their attention. It may be a useful pedagogical tool to illuminate the debate on bimetallism, but we should stop telling our students that it was written for that purpose."

I found a review of the book in the NY Times from 1900 and it does not mention anything about OZ having political or economic meaning. The book was also made into a musical a few years later and none of the reviews of the musical mention any political or economic meaning.

Why do employers pay extra money to people who study a bunch of subjects in college that they don’t actually need you to know? Signaling

See School Is Expensive. Is It Worth It? For your kids, yes—at least assuming they graduate. But the author of ‘The Case Against Education’ says the benefits to society are vastly overstated. WSJ interview with James Taranto and economics professor Bryan Caplan. Excerpts:

"Mr. Caplan’s case against education begins by acknowledging the case in favor of getting one. “It is individually very fruitful, and individually lucrative,” he says. Full-time workers with a bachelor’s degree, on average, “are making 73% more than high-school graduates.” Workers who finished high school but not college earn 30% more than high-school dropouts. Part of the difference is mere correlation: Mr. Caplan says if you adjust for pre-existing advantages like intelligence and family background, one-fifth to two-fifths of the education premium goes away. Even so, it really does pay to finish school."

"“Why is it that employers would pay all of this extra money for you to go and study a bunch of subjects that they don’t actually need you to know?”

The answer is “signaling,” an economic concept Mr. Caplan explains with an analogy: “There’s two ways to raise the value of a diamond. One of them is, you get an expert gemsmith to cut the diamond perfectly, to make it a wonderful diamond.” That adds value by making the stone objectively better—like human capital in the education context. The other way: “You get a guy with an eyepiece to look at it and go, ‘Oh yeah, yeah, this is great—it’s wonderful, flawless.’ Then he puts a little sticker on it saying ‘triple-A diamond.’ ” That’s signaling. The jewel is the same, but it’s certified.

Suppose you have a bachelor’s in philosophy from Mr. Caplan’s doctoral alma mater, and you’re applying for a job somewhere other than a college philosophy department. What does the sheepskin signal? His answer is threefold: intelligence, work ethic and conformity. “Finishing a philosophy degree from Princeton—most people are not smart enough to do that,” he says. At the same time, “you could be very smart and still fail philosophy at Princeton, because you don’t put in the time and effort to go and pass your classes.”

As for conformity, Mr. Caplan puts the signal into words: “I understand what society expects of me. I’m willing to do it; I’m not going to complain about it; I’m just going to comply. I’m not going to sit around saying, ‘Why do we have to do this stuff? Can’t we do it some other way? I don’t feel like it!’ ” It’s easy to gainsay the value of conformity, a trait the spectacularly successful often lack. Think Mark Zuckerberg. But then imagine how he would have fared as a 21-year-old college dropout applying for an entry-level corporate job.

Mr. Caplan believes these signals are reliable, that college graduates generally do make better employees than nongraduates. Thus it is rational for employers to favor them, and for young people to go through school."

"Because educational signaling is zero-sum, and because its benefits tend to flow to those who were well-off to begin with, the system promotes inequality without creating much wealth. Research comparing the personal and the national payoffs of schooling finds a wide discrepancy—in “the ballpark of, if a year of school for an individual raises earnings about 10%, [then] if you go and raise the education of an entire country’s workforce by a year, it seems to only raise the income of the country by about 2%.” Mr. Caplan therefore reckons that roughly 80% of the education premium comes from signaling, only 20% from marketable skills."

Also see The Philadelphia Eagles' Personnel Strategy: Targeting College Grads: Six of the Seven Players the Team Drafted This Year Are on Track to Graduate by Kevin Clark of the WSJ. It seems like NFL teams see the college degree as a signal. Exceprt:

"Philadelphia's philosophy of pursuing graduates was born when Roseman, the Eagles' general manager since 2010, and Kelly, the team's second-year coach, each discovered that teams with the most college graduates are overwhelmingly successful. Kelly learned this late in his coaching tenure at Oregon, when former Indianapolis Colts coach Tony Dungy, whose son played at Oregon, mentioned in a talk to Oregon players that in the 2000s, the two teams who happened to have loads of graduates were the Colts and New England Patriots. Those teams dominated the first decade of this century.

"I didn't know he'd take it this far," Dungy said, jokingly.

In a private conversation later, Dungy, now an analyst for NBC, told Kelly that his research showed players with degrees were more likely to earn a second NFL contract and make more money. He told Kelly "the guys with degrees have what you are looking for. They are driven. If it's between two players, a degree might tip the scale. But at the time, I don't think he was even thinking of the NFL."

But before Kelly even arrived in Philadelphia, Roseman was doing his own research. Each year, Roseman and his lieutenants take the last four teams left in the playoffs and do reports on them—studying their players' height, weight, background and virtually everything else. Through those reports came evidence that the most successful teams had many college graduates on them. When Roseman and Kelly joined forces, the plan was clear.

The trends over the last five drafts are startling. Studies show that teams who select players who spent five years in college—and thus almost always have a degree—win big. Of the three teams with the most fifth-year seniors drafted, two of them met in February's Super Bowl: the Seattle Seahawks and Denver Broncos. The Jacksonville Jaguars, who went 4-12, took the fewest.

The team that drafted the most players who stayed just three years on campus? The New York Giants, who have missed the playoffs the past two seasons. The Colts, Patriots and Washington Redskins, who have five total playoff appearances in the last two years, have taken the fewest three-year players, who rarely have college degrees.

Kelly said a degree is more than proof of intelligence. "It's also, what is their commitment?" he said. "They set goals out for themselves and can they follow through for it? A lot of people can tell you they want to do this, this and this. But look at their accomplishments."

The Eagles say they want players who are prepared, and a degree confirms that. Take wide receiver Jordan Matthews, a Vanderbilt economics major whose study habits translated perfectly to the NFL."

A Doonesbury comic strip from 1980 seemed to predict this. One of the college players in the huddle says he is taking a course in Bio-Physics during football season to impress the scouts. The printing might be hard to read, so I typed up all the dialogue and put it after the strip.

 

 Anyone see Willy?

He had to finish up a Bio-Physics report.

Where is he really?

I couldn't believe it either.

Okay Turner, what do you have to say for yourself?

Sorry, I'm late B.D. I had to finish up a Bio-Physics report.

Bio-Physics? What the hell are you doing taking a course that tough during football season?

To impress the scouts, man. I'm hoping to make the pros.

Impress the scouts?

You figure a good transcript will improve your chances, Willy?

Of course, man. You can't even think about joining the pros unless you've had four years of college.

No kidding?

Absolutely. Its virtually unheard of for a kid to get a job in the NFL with only a high school education.

That's the dumbest thing I ever heard! Nobody cares if football players are educated!

Sure they do. Why do you think there's such a thing as academic eligibility?

But that's a joke. For Gods's sake!

So what's your plan, Willy?

Well, I thought if I held off and got my masters, it might give me an edge.