Harvard vs. Univ. of Phoenix - debating signaling model of education

There is an interesting conversation going on berween economists, debating the signaling model of education.

The signaling theory, originated in the 1970's, says that to a significant extent, education does not increase workers' productivity. Instead, an education, a degree, send signals to employers that you are talented, hard-working all along, and they should hire you.

My experience inclines me to believe the signaling model of education , but Economics Professor Gary Backer observed that this model "had a run of a couple of decades, but is seldom mentioned any longer. I believe it declined because economists began to realize that companies rather quickly discover the productivity of employees who went to college, whether a Harvard or a University of Phoenix. Before long, their pay adjusts to their productivity rather than to their education credentials".

I never had a chance to see any data supporting Professor Gary Backer's observation, until this study about the performance of mutual fund managers. The study found that while a top-notch academic background is useful at the start of a career, after six years in the business, managers from second-tier universities, matched the performance of tier-one graduates.