Free Exchange has a Good Idea

The Economist's Free Exchange blog has a good idea that I had never saw published anywhere before. Writes:

...there's still a pending question regarding how a university degree contributes to increased earnings. Is it a product of the human capital investment, is it a signalling method or a qualification, or is it simply the case that the self-selected group of individuals that attends and completes college is more skilled and performs better, on the whole, in labour markets?

I suspect that actual human capital must play some role. The large premium commanded by university graduates generally, suggests that firms could benefit enormously by finding ways to identify and hire talented non-graduates. That they don't indicates that the actual process of college-completion generates needed skills.

I believe that the case is of a self-selected group of individuals that performs better in life in general and in the labor markets in particular. The idea is that if a firm could identify and hire individuals with the super capabilities but who for some reason did not go to school, it would benefit mightily. They could hire fist-class workers for second-class (and half) salaries.

As a personal anecdote, I had a friend called Avigdor Bar-Hay, a Hungarian Jew, who worked as project manager but had no academic titles (he started to work as an agriculturalist and then as agricultural extension worker when that was a Zionist ideal). He said he had to work double hard because he had to prove each and every day anew his worth. In Israel, in those times, employers paid academic salaries even to non-academic people, to compensate for the years "lost" in wars and military service. Even the "professional engineer" title was available for these special cases.