the marginal cost of getting an associate's degree from Paradise Valley Community College is probably about ten thousand to twenty thousand dollars tuition is pretty cheap but here in our economics class we know about opportunity costs compared to a person with a high school diploma people with Associate's degrees make an additional seven thousand dollars per year for the rest of their life which amounts to around three hundred thousand dollars over the course of a career if you go on to get a bachelor's degree add another 750 000 to that lifetime total and despite what you may have heard the college premium is higher now than it ever has been before these are averages your mileage may vary but if you make smart choices the typical person who gets a college education is going to be a lot richer than they would be without one the traditional explanation for this phenomenon is found in human capital Theory capital is the tools we use for production computers factories shovels and formulas are all considered capital human capital is the tools of the Mind knowledge experience and skills are all human capital it's the stuff that makes you productive the theory is that school increases your human capital you learn valuable skills and gain important knowledge and even experience which makes you more productive we can perhaps see some evidence of human capital theory in the difference in income shortly after graduation for different college majors if you look at the majors which give the best starting pay over on the left side of the graph you see all kinds of engineering and computer science economics does very well with early and mid-career salaries well above average for college graduates you should think about making it your major the average early career salary for college graduates and this data is from 2023 is around fifty thousand dollars and you can see a lot of Majors fall below that average such as Communications liberal arts and down at the bottom Majors like sociology and psychology don't get the wrong impression people who major in Psychology still make significantly more on average than people who don't go to college at all but many of these Majors which fall below average for college graduates are ones that don't teach a lot of useful job skills they're more academic and to work in those fields you usually need an advanced degree meanwhile Majors which teach stuff you really need to know for the jobs you get with those degrees such as engineering or computer science pay quite a bit more but there's some huge flaws with human capital Theory it's hard to explain for example why history majors or for that matter art history majors are paid more than biochemistry or anthropology majors very few people who major in history or art history end up getting jobs related to their degree they end up in other fields often totally unrelated to their degree so why are they making so much more money the signaling Theory offers a different explanation for why School pays off the most of the high paid jobs in the modern economy are difficult to do they require you to stay engaged while you sit in a lot of boring meetings they ask you to consume lots of information and digest it into a clear understanding of some situation high-paying jobs require people who are conscientious meaning they want to do their work well and thoroughly and who are willing to conform to the culture of a sprawling organizational hierarchy that asks people to be flexible and adaptable does that sound familiar a college degree is a signal to employers that you are a highly productive person signals only work when they're hard to fake and it's hard to make it through college if you aren't a conscientious person who is productive and willing to conform to your situation well that's sort of true sociology and psychology are quite frankly easier to get degrees compared to engineering or economics that doesn't make them less important or inferior we'll talk in the next section of the course about how much economics learned from psychology the mystery here is why students who graduate with a bachelor's degree in economics make so much more money on average compared to students who graduate with a bachelor's degree in psychology when people talk about the value of school they almost always talk about it in terms of the human capital Theory people want to go to school to learn something and improve themselves few people think about school as a Proving Grounds for your traits that you already possess and it doesn't have to be one or the other both of these theories can be true to some degree but there's a lot of evidence that a significant share of the education premium on wages is due to signaling one piece of evidence is the sheepskin effect named as such because they used to print College diplomas on sheepskin instead of paper if school really was all about building human capital then we would expect people who complete four years of school to get about double the premium that people who complete two years of schooling get but that is not the case people who go to college for one year and then drop out do make a little more money than their peers who never went to college and those who get two years of college do a little better than that three years of college also gets a small bump but once you finish that fourth year and you get the degree you get a huge bump in fact about 60 percent of the college premium arrives with the diploma no other school in the world can match Harvard's reputation for Success Harvard graduates go on to illustrious careers and great success is this because the students who attend Harvard are getting an education that is just so much better than the one I'm giving you here maybe but I don't think so even though Harvard is an extremely selective college that admits very few applicants I promise you that the prominent Economist currently teaching principles of economics there would be happy to let you sit in on that class in fact I bet most Harvard professors would be happy to let you sit in on their classes for free you could easily get a Harvard Education without paying a single penny intuition and without ever being accepted you'd have all the same chances at networking and all the same chances to learn valuable skills but no one does this because a Harvard Education is worth very little without a Harvard degree to come with it and that is pretty good evidence that most of the value you get out of attending Harvard is signaling so what should you do with this information is school worth it unequivocally yes in fact if anything the signaling model is more encouraging that you should finish your degree the Boost in your income is real and it's biggest for those who graduate but I think the most human capital I convey to you in this course is helping you see the game a little more clearly you're going to learn awesome stuff in college and hopefully you already have I mean I think economics is pretty awesome so mission accomplished but a lot of the point of this whole exercise we call College is to prove how capable you are this is not training camp before the season this is the combine where you show off your raw talent in order to get drafted this isn't practice it's the audition so if you want to get the most value you can out of your time in college work on becoming more conscientious and diligent and here's one more bit of advice most colleges have people at them who will move mountains to try and help you graduate if you've been toiling in this course but you haven't sent me an email about it then you're failing the test college is really about it isn't whether or not you can learn the material on your own it's whether or not you can work the system to accomplish your goals so get to work