Chronic Murmuring

When I was a member of a union, and my union was pretty worthless from the member point of view, I was astonished just by the volume of lying, deception, and politicking that went on in the union publications. They really work hard to indoctrinate people into the mindset that unions are the only way to create "fairness" in the workplace.

I think the only positive side was that they did try to provide a real, though extremely limited, social network for employees, occasionally organizing social events or helping members in distress. There wasn't much of this, but I credit them for that little bit.

This is great, I just told the story in class about wanting a fence built and having the choice between two migrant workers with hammers at $200 each or the union carpenter for $500, who then goes to the govt. and demands a "fair" wage for the nonunion guys of $300 each. Now who do you hire? "Fair" ain't always "fair," but it's politically popular and gets a lot of sympathy. I am going to forward the story to my students.

Frankly, I love it when the UAW reps come by my office to get me to join the T.A. union; they always get a little more then they bargained for.

Right - and in your example, it's specifically the less skilled worker who is hurt. So these guys actually can compete with higher skilled workers, because they have cheaper costs, but then the union screws them. Wait to go.

As far as I'm concerned the college degree is little more than a union. Once you get the piece of paper you're entitled to better pay, better jobs, and better respect.

At least with real unions the people are actually qualified, which is no longer the case with college graduates.

You're describing what economists call the signaling theory of education. Education, they say, does nothing to increase a workers' productivity (which is the other theory - the human capital theory of education). Rather, it functions as a signal to employees. You purchase, essentially, this signal which you hold up and show to the firms. And this signal says that you are more productive than those without teh signal. Firms, not having any way to determine your productivity, rely on these and other signals. There's some empirical evidence for this actually. If you look at the returns, in terms of wages, to education, you see, not surprisingly, wages increasing with additional years of schooling. But it's not entirely a linear increase. For instance, you see small changes as you increase the number of years of high school. The change really happens when you get the high school degree. Then you see very little increase in wages for each additional year of college, but a substantial increase for the college degree. If you take a high school dropout who dropped out maybe midway through his second semester of his senior year, and you compare him with a high school graduate, it's an interesting comparison. Arguably, they have had the identical courseload, their human capital should be basically teh same. Yet the wages for the high school student will be usually higher.

The empirical studies are plagued with a problem of ommitted variables, though, because there's no way to measure innate ability. There's crude proxies for it, like IQ or SAT tests, but even those don't necessarily correlate with "motivation" or anything like that. Still, I tend to believe that it's somewhere between the human capital story and the signalling story. I suspect that firms cannot detect the truly productive people a priori so they rely on these signals to find them. But, increased productivity is highly correlated with increases in wages and increases in education, and so it's hard for me to believe that it's merely a signal. I mean, for me, this economics degree sure ain't no signal. I mean it is, but it's also hard as crap. I think my output will be higher than a person with a bachelors in economics when I graduate - at least I HOPE so! I think the knowledge I've gained is of a nature that it does increase my productivity, which makes me valuable to firms or employers that value that quality (if they exist).

And schooling as "signal" is part of a larger class of phenomena -- wasting resources to signal your type in a cheap talk game.

An employer has a job opening. He wants a highly productive worker. The problem is that if he just asks each applicant, "are you a high performer or a low performer," everyone SAYS they're a high performer.

So the employer requires something that a high productive workers can do that a low productive worker can't do. (The separation doesn't need to be absolute, it's just easier to understand if the signal neatly separates the two types.

So, in this theory, college IS a complete waste of time for highly productive workers. It doesn't add one whit to their productivity. But they still need to expend the resource to get the degree in order to be able to separate from the low performing workers.

Or take engagement. The whole point of the diamond ring is that it gets you out of the cheap talk game. Anyone can say, "I love you." So how to separate those who really mean it from those who don't? The guy who will cough up the diamond. (And it doesn't need to be a diamond. We could just burn $10,000 -- it would be the same thing. And recall that John Wayne did just that in the Quiet Man.)

Or why wars occur. In this theory the whole point of war IS that it's wasteful. Two countries say they want the rhineland. It's cheap talk to say you really, REALLY want this hunk of land. So how do you show how much you really value the land? You waste a bunch of resources in war. There's no point to it other than the signal. It's just like spending money on a diamond ring.

The cheap talk games are a large, common, and really interesting class of games. They make sense of a lot of things that otherwise simply look like a waste of resources. (And, of course, they do waste of resources. But that's the whole point, not an incidental consequence of some other goal.)