Statistical discrimination is a harsh mistress. If reliable measures of the quality of job applicants are unavailable for short-listing, such as credit checks, coarser, less reliable screening devices will be employed. That was the case when credit checks were prohibited in employment recruitment:
Looking at 74 million job listings between 2007 and 2013, Clifford and Shoag found that employers started to become pickier, especially in cities where there were a lot of workers with low credit scores. If a credit-check ban went into effect, job postings were more likely to ask for a bachelor’s degree, and to require additional years of experience.
There are other ways that employers could have also become more discerning, Shoag says. They might have started to rely on referrals or recommendations to make sure that applicants were high-quality. In the absence of credit information to establish trustworthiness, they may even have fallen back on racial stereotypes to screen candidates. The researchers couldn’t measure these tactics, but they’re possibilities.
Drug testing allows employers to dispel less accurate stereotypes about drug use among different ethnic and social groups. They increased hiring of minorities because a reliable measure became available of their drug use:
…after a pro-testing law is passed in a state, African-American employment increases in sectors that have high testing rates (mining, manufacturing, transportation, utilities, and government).
These increases are substantial: African-American employment in these industries increases by 7-30%. Because these industries tend to pay wage premia and to have larger firms offering better benefits, African-American wages and benefits coverage also increase. Real wages increase by 1.4-13% relative to whites. The largest shifts in employment and wages occur for low skilled African-American men.
I also find suggestive evidence that employers substitute white women for African-Americans in the absence of testing. Gains in hiring African-Americans in these sectors may have come at the expense of women, particularly in states with large African-American populations.
Employers test for drug use both for health and safety reasons and as a way of screening out less reliable employees. People who break the rules are not reliable employees and that includes taking drugs. In low skill jobs, what employers seek is a recruit who is friendly and reliable.
Testing of the skills of workers also showed similar results. What happened is that the ratio of black to white hirings do not change. The administration of these skills tests allowed the more productive of both white and black job applicants to be identified and hired.
Employers already had an accurate stereotype of the average skills of different ethnic groups. Administration of tests allow them to identify which members of each group were the most productive.
It is a standard result that statistical discrimination improves the chances of below-average applicants subject to the stereotype but harms those of above average quality. For that reason, applicants look for what methods of counter-signalling to show that they are indeed a quality applicant – make themselves stand out from the crowd.
Employers profit from developing screening devices that go beyond stereotypes to identify above-average applicants. They want screening devices that find those who do not otherwise stand out from the crowd because of difficulties in transferring credible information about their quality. This is a special difficulty with low-skilled vacancies because hiring is made based much more than on character than experience.
I ask what is the point of passing an exam where there is widespread cheating, and in consequence the exam has little credibility. What is the point of holding an exam when there is widespread cheating?
If you seek to learn skills, cheating would be totally counter-productive. But if the exam simply produces a credential that people accept, students look for ways to get the credential as painlessly as possible.
Cheating works best if the signalling model of education is true. Students should cheat more in those courses that offer the least productivity gains.
Serious cheaters have been found to be more likely to be younger and have a lower grade point average. But as Alex Tabarrok argues
“I sometimes find evidence of cheating on exams but I rarely take action, I don’t have to. Almost invariably the cheaters get abysmally low grades even without penalty.
Some people I know get annoyed when students without evident handicap ask for and receive special treatment such as extra time on exams. I comply without rancor as the extra time never seems to help. Over the years I have had a number of students ask for incompletes. None have ever become completes.
I call this the law of below averages.”
Charles Murray has been cooking with gas lately – on fire. One of his points is too many go to college. Murray points out that succeeded at college requires an IQ of at least 115 but 84% of the population don’t have this:
Historically, an IQ of 115 or higher was deemed to make someone “prime college material.”
That range comprises about 16 per cent of the population.
Since 28 per cent of all adults have BAs, the IQ required to get a degree these days is obviously a lot lower than 115.
Those on the margins of this IQ are getting poor advice to go to college. Murray argues that other occupational and educational choices would serve them better in light of their abilities and likelihood of succeeding at college. Moreover, Murray is keen on replacing college degrees with certification after shorter periods of study such as in the certified public accountants exam.
Murray believes a lot of students make poor investments by going on to College, in part, because many of them don’t complete their degrees:
…even though college has been dumbed down, it is still too intellectually demanding for a large majority of students, in an age when about 50 per cent of all high school graduates are heading to four-year colleges the next fall.
The result is lots of failure. Of those who entered a four-year college in 1995, only 58 per cent had gotten their BA five academic years later.
Murray does not want to abandon these teenagers:
Recognizing the fact that most young people do not have ability and/or the interest to succeed on the conventional academic track does not mean spending less effort on the education of some children than of others.
…Too few counsellors tell work-bound high-school students how much money crane operators or master stonemasons make (a lot).
Too few tell them about the well-paying technical specialties that are being produced by a changing job market.
Too few assess the non-academic abilities of work-bound students and direct them toward occupations in which they can reasonably expect to succeed.
Worst of all: As these students approach the age at which they can legally drop out of school, they are urged to take more courses in mathematics, literature, history and science so that they can pursue the college fantasy. Is it any wonder that so many of them drop out?
Outside a handful of majors — engineering and some of the sciences — a bachelor’s degree tells an employer nothing except that the applicant has a certain amount of intellectual ability and perseverance.
Even a degree in a vocational major like business administration can mean anything from a solid base of knowledge to four years of barely remembered gut courses.
If the OECD is to be believed, that not enough people are going to college from lower middle class families, obviously IQ is not one of the constraints on access to college Charles Murray suggested it to be.
The growing strength of the case that education is a form of signalling is a literature that the now famous OECD paper reviewed, found wanting, but did not have time to discuss in the working paper.
Another contemporary theme the OECD paper reviewed, found wanting, but did not have time to discuss is a large number of graduates who end up holding jobs that do not require a university education – going to college:
About 48 per cent of employed U.S. college graduates are in jobs that the Bureau of Labor Statistics (BLS) suggests requires less than a four-year college education.
Eleven per cent of employed college graduates are in occupations requiring more than a high-school diploma but less than a bachelor’s, and 37 per cent are in occupations requiring no more than a high-school diploma.
The proportion of overeducated workers in occupations appears to have grown substantially; in 1970, fewer than one per cent of taxi drivers and two per cent of fire-fighters had college degrees, while now more than 15 per cent do in both jobs
All in all, the OECD has gone into the dragons den by backing the accumulation of human capital as its mechanism to link inequality with lower growth. No matter how you spin it, this linking of lower economic growth to greater inequality through financial constraints on the accumulation of human capital by the lower middle class was a bold hypothesis.
The case for investing more in education is not a slam dunk. Higher education – university or polytechnic – is a rat race that many don’t need to join.The case for the government paying a great many more to join that rat race is rather weak.