There’s an old saying that you go to college to get more knowledge.
I dare you to test this with any group of college students. I have, and the results tell a different story.
Go to a room full of students at any college in the country — a community college, a commuter school, a state university, or an Ivy League university — and ask the students the following question:
How many of you would spend the time you are spending, pay the money you are paying, and do the things you have to do as a student if at the end of your time at this university, you wouldn’t receive a degree? You would still learn all the things you are learning and still pick up the skills and knowledge you’re acquiring here, you just wouldn’t get the credential when you are done.
I’ve asked this question to thousands of college students and fewer than a dozen have ever raised their hands, no matter the school at which I am speaking (and those who do raise their hands should go become college professors).
The Signaling Theory of Education
These students aren’t gullible, dumb, misguided, or nefarious. They understand the signaling theory of education, even if they don’t know what it’s called.
The idea that you go to college to get more knowledge is inspired by the human capital theory of education. This is the idea that you consume educational services primarily for the skills and knowledge you gain through the process and not for the credential or the signaling value you can provide after going through with it.
If the human capital theory of education were accurate, then Coursera and Udemy would be the earth-shattering, industry-disrupting innovations they were thought to be. Massive Open Online Courses (MOOCs) would have changed the landscape of education in a way that would have brought down universities and started a revolution. Instead, the MOOC is just another delivery mechanism for knowledge. In fact, the MOOCs that have proven more disruptive are those that provide some kind of signaling value, like Udemy’s micro-credentials that are accepted by employers in lieu of degrees.
Instead, people buy a signal when they go through school, not knowledge. They purchase a way for employers, business partners, and peers to make shorthand decisions about them.
Degree inflation is an indicator of this. As more people get a certain credential, like a high school diploma, the signaling power of that credential becomes weaker and weaker. In order to further sort candidates, employers are forced to either choose a new system of sorting or require another credential, like the college degree. Once this credential becomes inflated, the process starts all over again. How many entry-level jobs have you seen that request a Master’s degree?
Build a Better Signal
The signaling theory of education is an empowering bit of knowledge. It helps you understand that you can be much more entrepreneurial with your own education and career prospects than most people think.
With the use of technologies like Google, LinkedIn, WordPress, and GitHub, employers can learn more about a candidate with a cursory search than they do from seeing your degree in Y studies from X State University.
This means that the credential that most people are purchasing (i.e., the degree) is a bare-minimum tool. It’s a way for HR managers and online portals to filter out candidates. Being a bare minimum, it’s not hard to do much better than it.
You can build a better signal in a few months of hard work and creative thinking than most people develop over four years at a prestigious university. Take the example of Nina Mufleh, whose viral Nina4Airbnb campaign showed off her design, storytelling, organizational, and travel skills in one simple webpage better than a transcript from a business school could.
It’s easy to get discouraged about the signaling theory when you think about degree inflation, but the wonderful thing about the marketplace is that employers have a strong incentive to find the best talent possible. No company advertises, “we hire second-tier talent!” and employers know that the degree inflation game can’t go on forever.
More and more employers are waiving degree requirements or removing them altogether because of the sorting power of tools like Google and LinkedIn. A candidate who has a well-maintained personal website with a professional portfolio and references is more likely to do well than a candidate who merely has a degree. They know this and this provides a unique opportunity to the entrepreneurial young person today looking to hack their education and career.
The signaling theory is economics for the real world. Understand the incentives at play on the institutions that are employers and higher education and you can unlock new opportunities for yourself while everybody else stands on the conveyor belt.