Signaling with degrees

If I were still teaching economics, I might use this article from Inside Higher Ed. It considers the possibility that higher ed is nothing more than signaling. Most examples that use economic concepts are esoteric to college students who have very limited experiences. But the question of whether going to college is a good decision or not is something that they can relate to.

Adverse selection and college teaching

From Inside Higher Education:

If the potential employer makes an offer to a candidate and that candidate is in fact a gifted teacher, the home institution will make a counter offer. If the candidate is in fact a poor or average teacher, the home institution will not make a counter offer and the potential employer is likely to hire a poor or average teacher. This leads to what economists call “adverse selection” for job offers to potential teachers. Since the prospective employer knows it is likely to hire a poor or average teacher rather than an exceptional teacher, it does not make offers designed to attract exceptional teachers, and the market for exceptional teachers does not exist. Clearly, this problem is made worse by tenure, since tenure greatly increases the cost of making a bad hiring decision. In short, the “market for superior teaching” has unraveled due to insufficient information about teaching quality.

Screening or human capital?

An article in the Lafayette Journal and Courier says that some employers do not want to hire people who have been unemployed for more than a year.

There is a stigma that long-term jobless people have been sitting around and don't really want to work. There is the perception that they won't take a lower-paying job -- and if they do, they will bolt as soon as they find a higher-paying one.
On top of that, some companies have explicitly barred the unemployed from certain job openings, outright telling them in job ads that they need not apply.

 ....
But the company is far from alone in wanting workers who already are gainfully employed, said Patrice Waidner, board chairwoman of the Indianapolis chapter of Business & Professional Exchange, a networking organization that helps unemployed professionals."Companies are saying, 'I will take the person who was just working or is currently working,' " she said. "It is extremely difficult to get back into the job market."

Does a person lose job skills as a result of being unemployed for a long time? Or does long-term unemployment tend to be a marker for people who are less reliable and dependable than average? The article does not tell us much, but then the reporter probably does recognize that these are interesting questions.

The economics of heath care

Tigerhawk links to an excellent article in the Atlantic on health care. From the article:

All of the actors in health care—from doctors to insurers to pharmaceutical companies—work in a heavily regulated, massively subsidized industry full of structural distortions. They all want to serve patients well. But they also all behave rationally in response to the economic incentives those distortions create. Accidentally, but relentlessly, America has built a health-care system with incentives that inexorably generate terrible and perverse results. Incentives that emphasize health care over any other aspect of health and well-being. That emphasize treatment over prevention. That disguise true costs. That favor complexity, and discourage transparent competition based on price or quality. That result in a generational pyramid scheme rather than sustainable financing. And that—most important—remove consumers from our irreplaceable role as the ultimate ensurer of value.
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But health insurance is different from every other type of insurance. Health insurance is the primary payment mechanism not just for expenses that are unexpected and large, but for nearly all health-care expenses. We’ve become so used to health insurance that we don’t realize how absurd that is.
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There was nothing natural or inevitable about the way our system developed: employer-based, comprehensive insurance crowded out alternative methods of paying for health-care expenses only because of a poorly considered tax benefit passed half a century ago.
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Is this really a big problem for our health-care system? Well, for every two doctors in the U.S., there is now one health-insurance employee—more than 470,000 in total.
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Many hospitals still exist in their current form largely because they are protected by regulation and favored by government payment policies, which effectively maintain the existing industrial structure, rather than encouraging innovation.

Read the whole thing if you want a good summary of why health care is the mess that it is.

Brand names as signaling

Mazda destroys 4703 new cars, worth about $100 million, to protect its brand name.

Mazda saw no easy way to guard against these outcomes. So it decided to destroy approximately $100 million worth of factory-new automobiles. "We couldn't run the risk of damaging the brand name that Mazda worked so hard over the years to develop," says Jeremy Barnes, the company's corporate-affairs director for North America.

(It is a bit old, but still a good example for why brand names matter.)