The Supreme Court and the Inflation of Educational Credentials

Editor’s Note: This week’s Clarion Call features a guest commentary by Lowell Gallaway. He is an emeritus professor of economics at Ohio University. Gallaway discusses the impact of a Supreme Court decision 35 years ago and the current emphasis on obtaining academic credentials.

In the mid-nineteenth century, the French economist Frederic Bastiat distinguished between good and bad economists by focusing on whether they thought through the long-run consequences of their arguments. According to Bastiat, a good economist was not blinded by the possible short-run gains to be attained by pursuing a certain course of action, but asked the question, “What will be the long-run consequences of doing that?” Bastiat was saying that the good economist worries about what we today call unintended consequences, whereas the bad economist considers only the immediate and visible consequences.

While Bastiat’s point was couched in terms of economists, his analysis could be applied just as well to anyone in position to make public policy decisions, including judges who can make law through their decisions in cases. (Judges often say that they are simply “interpreting” the law when they’re actually creating it.) A classic case of this phenomenon was the Supreme Court’s 1971 decision in Griggs v. Duke Power Company (401 U.S. 424).

That decision rendered the use of ability testing by employers to select the most capable applicants for jobs a minefield of possible litigation. The Court’s decision proceeded from an unstated premise that cognitive ability testing by employers to evaluate possible employees was of the same ilk as literacy tests that had often in the past been used to disenfranchise minority voters. In the words of the Court’s unanimous opinion, ability tests “operate as built-in headwinds for minority groups and are unrelated to measuring job capability.”

The upshot of the Griggs decision was to place employers in the position of being presumed guilty of job discrimination if they used ability tests to screen applicants, unless they could prove themselves innocent by showing that the pre-employment test they used had a manifest relationship to the performance of the job in question. In the Supreme Court’s view, since cognitive ability tests appeared to have a more adverse impact on minority workers than on others, their use was presumptively discriminatory.

Duke Power had also established a requirement that applicants for most jobs had to have a high school diploma. The Court also ruled that this requirement was illegal unless the employer could prove that having finished high school was necessary to the work.

The Court’s intent in Griggs was to eliminate job market screening mechanisms used by employers to sort out job applicants, where there was a “disparate impact” on minority workers. However, it is one thing for a court to rule against a practice and quite another to actually bring about its demise. Confronted with the Griggs decision, employers could adapt in various ways. One would be to attempt to construct tests that would satisfy the Court’s demand that any test should be both valid and clearly related to the performance of the job in question. The trouble with that option is that it would be costly to devise such tests and even if the business thought it had come up with them, there was still the risk of being dragged into court if a disappointed job applicant sued. It costs a lot of money even if you win a court case, and there is always the possibility that a judge will rule the tests to be not good enough.

So what else could employers do? One approach would be to turn to an alternative indicator of ability. While the Court would not accept an overt requirement for a high school diploma, nothing in Griggs prevents potential employees from including their educational accomplishments in their resumes. And nothing prevents employers from reading those resumes. Thus, employers could behave as if they were imposing an educational requirement without formally doing so.

That strategy also has its difficulties, chiefly that it might still lead to a “disparate impact” on the employment of minorities. A solution would be to have a quota hiring system for minorities and beyond that rely on educational credentials to help sort out job applicants. In effect, the cost of affirmative action hires is treated as an additional fixed cost of doing business.

It appears that many employers have pursued that strategem. What are its consequences? The answer depends on how individuals seeking employment behave. Would they become aware that employers were still quietly using education credentials? Would they observe that others with whom they were competing had greater success if they had impressive educational certificates? Given the abundance of publicity emphasizing the positive association of levels of education with employment success, it seems highly likely that they would become so aware. At least, there would develop a widespread belief that it is in each individual’s interest to acquire educational credentials – and the higher the better.

That belief has been reinforced by a number of factors, particularly at the college level. Higher education spokesmen talk constantly about how they raise their students’ “investment in human capital.” Politicians often speak about the supposed importance of education in stimulating economic growth. Students (perhaps the wisest of all) seem to know that institutions of higher learning have become the gatekeepers to much of the nation’s job market.

Higher education’s response to its acquiring the role of gatekeeper of much of the job market is a story in itself. It has behaved in a way that is suggestive of massive monopolistic imperfections in the market for its product. Confronted with a significant increase in demand for its services (due at least in part to Griggs), it has engaged in overt price discrimination against students and their parents. Assisted by certain government rules, they carefully estimate the maximum amount a student’s family can pay in determining tuition charges. Discounts in the form of scholarships and work-study jobs are given to those who are thought unable to pay the full amount. By this method, colleges and universities are attempting to capture as much as they can of what economists call the consumer surplus that occurs in market transactions.

If the Supreme Court had not inveighed against the use of ability tests by employers, it’s doubtful that they would have come to rely so greatly on educational credentials as a surrogate for ability. That has driven up the demand for – and price of – a college education. It has also closed off many jobs and careers to people who can’t or don’t get their educational credentials. The profusion of “degree mills” that sell diplomas in exchange for money and little or no true academic work is another consequence.

Under the old regime of ability testing, which probably did a better job of identifying workers with the desired abilities, people didn’t need to spend years of their lives and huge amounts of money just to obtain a piece of paper. Griggs played a major role in catalyzing the current mania for educational credentials.

Oddly enough, there haven’t been any legal challenges to employers who use college degrees as a screening device just the way Duke Power used the high school diploma. Under the Court’s reasoning, it would seem that a person ruled out of consideration for an entry-level job in hotel management, e.g., because the employer insists on college graduates, would have a strong case. For many jobs, a college degree is no more essential to the ability to do the work than was the high school diploma in Griggs.

When the Supreme Court decided Griggs, it undoubtedly was not thinking about the long-run consequences. It was “interpreting” the 1964 Civil Rights Act in a way it thought would be beneficial, but it has had serious unintended consequences. If Bastiat were still alive, he would nod ruefully.