College is mostly about human capital, not signaling

Human capital formation, Stanford style

This is not an area I know a lot about, but I have some thoughts.

Some people think college is about signaling, not about building human capital. I'd say most economists believe this. But what exactly do they think is being signaled?

Intelligence? No, that doesn't make sense. It's way too easy to tell who's smart. To signal general intelligence, all you need to do is take some tests - AP tests and SAT 2's if you're trying to signal moderate intelligence, International Math Olympiad if you're trying to signal exceptional mathematical intelligence, and so on. You don't need 4 years at an elite school to show you can do some math problems or memorize some stuff.

In fact, in Japan, most employment decisions are based on exactly this sort of signal. High school students who want good careers spend all of high school studying for some really long college entrance exams, and employers basically pick the students who get the best scores on these exams. Yes, colleges also make their decisions based on those same exams. But Japanese college basically provides zero additional signal, because A) Japanese college kids do very little work, and B) Japanese employers don't even look at college grades. Whatever Japanese people's reason is for going to college, it isn't for signaling intelligence. No reason America should be any different.

So what else could people be signaling at college? The ability to do hard work in the face of massive leisure temptation? I actually think this is a reasonably big deal, especially in the U.S. If college performance is a signal, it's a signal of people's desire to study when they could be partying. (Update: Here's a signaling defender who agrees.)

But this doesn't explain Japan. In Japan, college students do mostly party. In fact, that is what you are supposed to do at college, especially at a top school like Tokyo University. It is encouraged. Fun fact: Many Japanese people call college "moratorium". As in, a moratorium on work.

Now, this could indicate that college is actually about consumption. Well, to some degree, it is; college is fun. But people tend to smooth consumption, and college is all concentrated at one time, so it doesn't make sense that college would be mostly about consumption.

This leaves human capital. Economists (including at least one in my PhD graduating class) have often tried to show that college doesn't produce useful skills. But I think that this is missing the point; useful skills, which you mostly learn on the job, are not the only valuable form of human capital. There are three extremely important forms of human capital that you can't acquire on the job:

1) Motivation,

2) Perspective, and

3) Human networks.

These, I believe, are the types of capital that college is designed to build, both in Japan and in the United States.

First, motivation. Motivation is widely recognized as the scarce quantity, or "limiting reagent" in an individual's human capital. This is the source of all those annoying motivational poster slogans. "Attitude is everything". "Your attitude determines your altitude". Or as Calvin Coolidge said:

Nothing in the world can take the place of Persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts.

These sayings are cheesy and annoying, but they are true; skills mean nothing if you don't have a reason to put them to work. Everyone knows that the biggest long-term threats to the career of any scientist or engineer are "burnout" and clinical depression. In poor countries, the threat of poverty provides ample incentive for hard work, but in rich countries - i.e., the countries where most smart people go to college - motivation is a more ephemeral thing.

What motivates smart people in rich countries? Here is where I start to conjecture, but my bet is: Human relationships. Friends and family. We work hard for other people. When we're young, we work because our parents want us to work. When we leave the nest, however, we need to find other relationships to motivate us. I can't tell you the number of people I've seen who excelled in high school under the watchful gaze of a Tiger Mom, only to lose much of their motivation once Mom was no longer looking over their shoulder (I can, however, tell you the name of one such person: Noah Smith).

To replace Mom, young adults need to form new relationships. Close friends. Romantic partners, and eventually a spouse (which in turn leads to kids, another motivator). But it is very difficult to form these relationships fast (which you need to do in order to start a career fast) without sacrificing quality; if you're just randomly searching, it takes a long time to find friends and a lover who really click with you, especially if you're a smart person who clicks best with other smart people.

This is where college comes in. College is an intense incubator where smart people meet other smart people. The large number of leisure activities and the close quarters in which people live facilitate the formation of friendships and romantic relationships, while the exclusiveness of college makes sure that the people you're meeting are pre-screened to be the type of people with whom you are most likely to click. In the U.S., the "college experience" includes parties, trips, clubs, athletic events, religious fellowships, communal drug use, study groups, endless late-night conversations, and more esoteric events like the one pictured above. In Japan, it includes "go-kon" (group blind date) parties, "nomikai" (pub nights), and clubs. American college works better, but it's much the same sort of thing.

The friendships and (especially) romantic relationships people form in college are a great motivator. That is an incredible boost to human capital.

Second, there is "perspective". This is about learning the set of possibilities for life. Before I went to college, I never knew people who went into the finance industry, or joined tech startups, or worked for the World Bank, or did sound engineering for movies, or taught English in foreign countries. In college I met people who did all of the above, and seeing them taught me a lot about the set of possibilities for human life. Simply knowing one's career choice set is a hugely important part of choosing the right career. And it's surprisingly hard to do. College is a great way to gain career and life perspective; if you go from high school straight to the workforce, you are basically assured of not meeting as diverse a group of high achievers.

That is part of human capital. It's much more important in America than in Japan (where careers are less differentiated and people switch careers only rarely). But it is very important. And it is more important for poor people, who grow up mostly seeing other poor people.

Finally, there are the human networks built by college. I won't talk a lot about this, because other people have done so quite a lot, and there are a bunch of scientific papers about it. And it's pretty obvious, just from looking at MBA programs, which cost more than college and are well known to be all about professional networking. (Note: As a commenter points out, this is actually called "social capital".)

All three of these types of human capital have to do with bringing people together. It is not something that can be built online. It is not something that can be built on one's own, or in high school. There is a reason why college is called "college", meaning "gathering".

So anyway, I don't want to drag this on too long, and I've made the basic points. College is useless as a mechanism for signaling intelligence. It's probably somewhat useful for signaling the ability to work hard and resist temptation, at least in the U.S. where many colleges require hard work (but not in Japan). It is about consumption, but it's too concentrated in time to be mostly about consumption. College is really about human capital, of the kind not conveyed in classes - motivation, perspective, and networking. Rather than a hideously, inefficiently expensive signaling mechanism, college is an ingenious technology for building the kinds of human capital that are scarce among smart people in rich countries.