I'm no fan of university nor academia, so I do partly agree with The Case Against Education by Bryan Caplan. I do think social climbing is a major aspect of university. (It's not just status signalling. There's also e.g. social networking.)
I'm assuming you can electronically search the book to read additional context for quotes if you want to.
For a single individual, education pays.
You only need to find one job. Spending even a year on a difficult job search, convincing one employer to give you a chance, can easily beat spending four years at university and paying tuition. If you do well at that job and get a few years of work experience, getting another job in the same industry is usually much easier.
So I disagree that education pays, under the signalling model, for a single individual. I think a difficult job search is typically more efficient than university.
This works in some industries, like software, better than others. Caplan made a universal claim so there's no need to debate how many industries this is viable in.
Another option is starting a company. That's a lot of work, but it can still easily be a better option than going to university just so you can get hired.
Suppose, as a simple model, that 99% of jobs hire based on signalling and 1% don't. If lots of people stop going to university, there's a big problem. But if you individually don't go, you can get one of the 1% of non-signalling jobs. Whereas if 3% of the population skipped university and competed for 1% of the jobs, a lot of those people would have a rough time. (McDonalds doesn't hire cashiers based on signalling – or at least not the same kind of signalling – so imagine we're only considering good jobs in certain industries so the 1% non-signalling jobs model becomes more realistic.)
When they calculate the selfish (or “private”) return to education, they focus on one benefit—the education premium—and two costs—tuition and foregone earnings.
I've been reading chapter 5 trying to figure out if Caplan ever considers alternatives to university besides just entering the job market in the standard way. This is a hint that he doesn't.
Foregone earnings are not a cost of going to university. They are a benefit that should be added on to some, but not all, alternatives to university. Then univeristy should be compared to alternatives for how much benefit it gives. When doing that comparison, you should not subtract income available in some alternatives from the benefit of university. Doing that subtraction only makes sense and works out OK if you're only considering two options: university or get a job earlier. When there are only two options, taking a benfit from one and instead subtracting it from the other as an opportunity cost doesn't change the mathematical result.
See also Capitalism: A Treatise on Economics by George Reisman (one of the students of Ludwig von Mises) which criticizes opportunity costs:
Contemporary economics, in contrast, continually ignores the vital connection of income and cost with the receipt and outlay of money. It does so insofar as it propounds the doctrines of “imputed income” and “opportunity cost.” The doctrine of imputed income openly and systematically avows that the absence of a cost constitutes income. The doctrine of opportunity cost, on the other hand, holds that the absence of an income constitutes a cost. Contemporary economics thus deals in nonexistent incomes and costs, which it treats as though they existed. Its formula is that money not spent is money earned, and that money not earned is money spent.
That's from the section "Critique of the Concept of Imputed Income" which is followed by the section "Critique of the Opportunity-Cost Doctrine". The book explains its point in more detail than this quote. I highly recommend Reisman's whole book to anyone who cares about economics.
Risk: I looked for discussion of alternatives besides university or entering the job market early, such as a higher effort job search or starting a business. I didn't find it, but I haven't read most of the book so I could have missed it. I primarily looked in chapter 5.
The answer would tilt, naturally, if you had to sing Mary Poppins on a full-price Disney cruise. Unless you already planned to take this vacation, you presumably value the cruise less than the fare. Say you value the $2,000 cruise at only $800. Now, to capture the 0.1% premium, you have to fork over three hours of your time plus the $1,200 difference between the cost of the cruise and the value of the vacation.
(Bold added to quote.)
The full cost of the cruise is not just the fare. It's also the time cost of going on the cruise. It's very easy to value the cruise experience at more than the ticket price, but still not go, because you'd rather vacation somewhere else or stay home and write your book.
BTW, Caplan is certainly familiar with time costs in general (see e.g. the last sentence quoted).
Laymen cringe when economists use a single metric—rate of return—to evaluate bonds, home insulation, and college. Hasn’t anyone ever told them money isn’t everything! The superficial response: Economists are by no means the only folks who picture education as an investment. Look at students. The Higher Education Research Institute has questioned college freshmen about their goals since the 1970s. The vast majority is openly careerist and materialist. In 2012, almost 90% called “being able to get a better job” a “very important” or “essential” reason to go to college. Being “very well-off financially” (over 80%) and “making more money” (about 75%) are almost as popular. Less than half say the same about “developing a meaningful philosophy of life.” These results are especially striking because humans exaggerate their idealism and downplay their selfishness. Students probably prize worldly success even more than they admit.
First, minor point, some economists have that kind of perspective about rate of return. Not all of them.
And I sympathize with the laymen. You should consider whether you want to go to university. Will you enjoy your time there? Future income isn't all that matters. Money is nice but it doesn't really buy happiness. People should think about what they want to do with their lives, in realistic ways that take money into account, but which don't focus exclusively on money. In the final quoted sentence he mentions that students (on average) probably "prize worldly success even more than they admit". I agree, but I think some of those students are making a mistake and will end up unhappy as a result. Lots of people focus their goals too much on money and never figure out how to be happy (also they end up unhappy if they don't get a bunch of money, which is a risk).
But here's the more concrete error: The survey does not actually show that students view education in terms of economic returns only. It doesn't show that students agree with Caplan.
The issue, highlighted in the first sentence, is "economists use a single metric—rate of return". Do students agree with that? In other words, do students use a single metric? A survey where e.g. 90% of them care about that metric does not mean they use it exclusively. They care about many metrics, not a single one. Caplan immediately admits that so I don't even have to look the study up. He says 'Less than half [of students surveyed] say the same [very important or essential reason to go to university] about “developing a meaningful philosophy of life.”' Let's assume less than half means a third. Caplan tries to present this like the study is backing him up and showing how students agree with him. But a third disagreeing with him on a single metric is a ton of disaagreement. If they surveyed 50 things, and 40 aren't about money, and just 10% of students thought each of those 40 mattered, then maybe around zero students would agree with Caplan about only the single metric being important (the answers aren't independent so you can't just use math to estimate this scenario btw).
Self-help gurus tend to take the selfish point of view for granted. Policy wonks tend to take the social point of view for granted. Which viewpoint—selfish or social—is “correct”? Tough question. Instead of taking sides, the next two chapters sift through the evidence from both perspectives—and let the reader pick the right balance between looking out for number one and making the world a better place.
This neglects to consider the classical liberal view (which I believe, and which an economist ought to be familiar with) of the harmony of (rational) interests of society and the individual. There is no necessary conflict or tradeoff here. (I searched the whole book for "conflict", "harmony", "interests" and "classical" but didn't find this covered elsewhere.)
I do think errors of omission are important but I still didn't want to count this as one of my three errors. I was trying to find somewhat more concrete errors than just not talking about something important and relevant.
Bonus Error Two
The deeper response to laymen’s critique, though, is that economists are well aware money isn’t everything—and have an official solution. Namely: count everything people care about. The trick: For every benefit, ponder, “How much would I pay to obtain it?”
This doesn't work because lots of things people care about are incommensurable. They're in different dimensions that you can't convert between. I wrote about the general issue of taking into account multiple dimensions at once at https://forum.effectivealtruism.org/posts/K8Jvw7xjRxQz8jKgE/multi-factor-decision-making-math
A different way to look at it is that the value of X in money is wildly variable by context, not a stable number. Also how much people would pay to obtain something is wildly variable by how much money they have, not a stable number.
If university education correlates with higher income, that doesn't mean it causes higher income. Maybe people who are likely to get high incomes are more likely to go to university. There are also some other correlation isn't causation counter-arguments that could be made. Is this addressed in the book? I didn't find it, but I didn't look nearly enough to know whether it's covered. Actually I barely read anything about his claims that university results in higher income, which I assume are at least partly based on correlation data, but I didn't really check. So I don't know if there's an error here but I wanted to mention it. If I were to read the book more, this is something I'd look into.
Want to see me look through the book and write this post? I recorded my process with sporadic verbal commentary: