Why higher education should take the ‘signalling critique’ seriously – and what that might look like

A couple of weeks ago, HEPI published a paper by Lord David Willetts, making a forceful case for continuing to support and expand higher education. There is a lot that we agree with in that paper. Education can be a transformative experience, improving graduates’ earning power and wellbeing, with spill-over benefits for the rest of society. Willetts’s recommendations – more universities, better funded, alongside greater investment in further education and lifelong learning – is a particularly clear example of what seems to be the orthodox position among educationalists: more is better.

Yet as Willetts recognises, we are in a time of great scepticism regarding the value of higher education. One concern he flags is the declining graduate wage premium in the UK, which we chart in the report (see the excerpt Fig 3 below). The think tank Onward argues that many degrees offer a ‘poor return on investment’ because of how little their graduates earn. There are clear indications that the Treasury wants to recoup some of the billions of pounds of public money that goes into the system.

One argument critics of higher education often make is the so-called ‘signalling critique’. This is the claim that a significant proportion of the wage benefit of education comes from demonstrating a person’s pre-existing skills and abilities, not from enhancing those skills and abilities. In short: a meaningful share of the value of the degree comes from the fact you were able to get into a particular university rather than what you learned there.

Some signalling is probably unavoidable – and not worth worrying about – but no-one funds universities in a desire to fuel an arms-race to signal capabilities that everyone had in the first place. From a fiscal and a moral perspective, we should all want as much of education to be focused on long-lasting, transformative experiences (including those that increase productivity overall), rather than just making it easier for employers to adopt lazy recruitment filters (and does little for productivity or anything else).

Productivity and economic benefits are, of course, only one motivation for taxpayer subsidy and individual investment in higher education – but they are at the centre of the fiscal arguments with the Treasury that Lord Willetts hopes to win and a primary motivation for many students, especially in England (see citations in our report, on pages 8 and 9).

The higher education sector has typically chosen not to engage with the signalling critique at a policy level. Three examples: Lord Willetts mentions it and dismisses it without providing any evidence for or against (p.20), focusing instead on such concerns as the culture war and voting trends. A recent research synthesis from UCL Centre for Education Policy and Equally Opportunity gives the evidence on signalling a fairer hearing, but prefers not to place a number on how important it is for wage gains, arguing instead that any impact it has is ‘limited’.

A third example can be found in Professor Danny Dorling’s book review for HEPI, arguing against the most bombastic case for signalling: Professor Bryan Caplan’s The Case of Education. The review presents one counter piece of research but focuses most of its attention on Professor Caplan’s upbringing, character and motivations. The counter evidence is welcome (and well put), but a single piece is not sufficient to overturn a synthesis study, no matter who the author is or why they wrote it.

At the same time, signalling advocates share some of the blame for a lack of constructive dialogue. Caplan’s primary policy recommendation is for sharp ‘educational austerity’, such an extreme suggestion that it acts as a conversation stopper. His other ideas, like increased emphasis on vocational education, can subsequently struggle to get a fair hearing. A defensive backlash may not be sensible, but it is understandable.

In our view, both sides have a point: much of education is extremely valuable, but there are aspects to it that are socially wasteful. By trying to bring them together, we can better direct the time, energy and resources of our education system to things that really benefit learners and society at large. That is where our recent paper, Signal Failure, comes in.

We do not know for sure how much of the wage premium to higher education is due to signalling alone, rather than productivity enhancing gains like new knowledge and skills. It is fiendishly hard to accurately estimate and the academic debate has raged for decades: it is easy to cherry-pick studies to support either side of the debate. However, our review of five different econometric techniques suggests that it is a big enough issue to merit taking seriously: a conservative 20 per cent to 40 per cent of the wage premium is likely to be signalling (see the Table 1 excerpt from our report below).

Some of the studies we cite that land within the 20 per cent to 40 per cent range conclude that this level of contribution is unimportant, perhaps because it is not the ‘primary’ driver, being less than 50 per cent. We disagree. If it were only 5 per cent or below, it might be ignorable – but it is hard to believe that any good faith synthesis study could arrive at such a point estimate. Given the amount of time and money going into higher education, even the low end of the range is worth our collective attention.

So what to do about it? We don’t think the answer is broad-based defunding of education (at any of its levels). Indeed we fear that the sector’s current response to the signalling critique makes such an outcome more, not less, likely.

Here are three initial ideas for ways the higher education sector could try to limit (not remove) the role of signalling:

1. Shift the emphasis towards degree subject and grade. The emphasis on the institution of study in graduate recruitment places weight on successful admission (a signal of priority ability) rather than what is achieved in the course (the human capital gain). More granular degree classifications that are more comparable between institutions would give employers much more to work with.
2. Make it easier to stop, start and switch. Where signalling prior ability is a key benefit, we should help students gain it more quickly, without sacrificing difficulty lest the signal lose credibility. Shorter courses, micro-credentials and modular courses would all help. Students could be actively helped to stop, start and switch courses, allowing for multi-year breaks with less stigma, underpinned by excellent career guidance and employer engagement to navigate the newfound flexibility. When students come back (and surely many would) they would do so with a much clearer idea of the value being gained. Such a shift would help a culture of lifelong learning and engaging mature students, who are also plausibly more likely to pursue education with genuine human capital benefits.
3. Pick up the measurement challenge. Capture learning gain directly. Track the role of signalling consistently over time and for subgroups. Use this as part of a constructive engagement with policymakers. We must not let the perfect be the enemy of the good. Inflation and social inequality are critical social issues that are very imperfectly measured today – and yet we still make important policy gains from tracking proxy metrics and understanding the metrics’ limitations.

Signalling is not just down to the higher education sector and other actors have a role to play as well. Our report suggests ideas for schools and colleges providing career guidance, employers’ hiring habits and the system infrastructure overseen by policymakers.

Some of these proposals are familiar – and are attractive for a range of different policy outcomes. This is not a bad thing. We might hope the signalling lens can both strengthen the case for such policies and take the heat out of a critique that has such potential to harm the sector if it continues being exploited for political ends.

We do not pretend to have all the answers. The ideas above are the start of the conversation, not the end of it. Some might not turn out to be effective or feasible, but one or two might mark a genuine improvement – and there will be other ideas to bring into the tent as well. Please get in touch if you would like to publish a formal response with us, join a group discussion, or simply share a reaction.

This article originally appeared at HEPI.ac.uk and has been reproduced with permission.