The Law of Signal Conservation

This article describes a hypothetical model of signalling relevant to labor analysis.

There are many such models, but a possibly unique characteristic noted here is that transactions completed on the basis of a signal may involve a constant total signalling value even while signal sources vary.

Dr. Caplan is author of The Case Against Education which is forthcoming next January. Students of his GMU 895 course this Fall are privileged to review a chapter-by-chapter preview. In one lecture he casually mentioned the possibility of the existence of a law of signal conservation in response to a students question. This sort of melted my brain as it concisely puts a complex notion that I was attempting to include in my own work on alternative credentials.

Basically:

  1. Employers hire people they think will do a good job. They expect business productivity.
  2. Technical skill is a factor of business productivity.
  3. Social norms factor into business productivity.

Social skills including communication skills, ability to work in a team setting, awareness and utilization of polite behaviors and language, and other forms of social compatibility with workers in your work environment will lead an individual being more productive even with average technical skill, where a technical skill might be an individual’s JavaScript skill. A person can also be a whiz with JavaScript and be very unproductive in the overall business sense if they are not able to understand requirements, seek clarification, deliver on schedule, work with a team, and so on.

So there’s a trade-off. Think of a typical micro equilibrium graph where an employer pays for a basket of individual social and technical skills. At the end of the day, the employer has a fixed willingness to pay and this constitutes a fixed threshold of demand. Any candidate must meet that fixed level of signal, through whatever combination of factors, in order for the transaction to obtain, where the transaction is an offer of employment in this case.

Likewise employees and employers will compete and obtain an equilibrium signal on the market. Interestingly, this coincides with an equilibrium market price. I wonder if the two might be identified with one another? Of course, this equilibrium is temporally dynamic, but it is fixed at any given time.

Other interesting (imo) thoughts I had about signalling:

  1. Weirdness exhibits and inverse bell curve with respect to productivity. Very weird people are generally very unproductive or very productive, while normal people generally have average productivity.
  2. Couple the above with risk aversion and you have an obvious explanation for employers preferring normal people.
  3. Another explanation for the preference of normal people is that it minimizes onboarding costs. People who are weird are weird in a variety of ways, but people are normal in a singular way. Standard onboarding targeted at normal behavior optimizes on both groups. Normal people are the larger Q group anyway, so that separately incentivizes onboarding to target that group.
  4. All of the above is a ceteris paribus analysis, but evidence-based credentials break this ceteris paribus assumption. With evidence-based credentials a candidate employee can credibly present to the employer as a member of a high-productivity group instead of a low-productivity group and their weirdness becomes an advantage. For example, having a PhD is weird but in the way that many employers will appreciate, and if you are a bit eccentric it’s OK because your “the kind of person who gets a PhD” weird, like Sheldon Cooper maybe.
  5. Third parties directly engaging employers with evidence seems like an effective route to changing this norm. So, send your boss a copy of The Case Against Education and you will be doing the whole future labor force a favor.
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