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  • Writer's pictureEdward Nevraumont

Harvard, Human Capital, Signalling and Selection Effect

Welcome to Marketing BS, where I share a weekly article dismantling a little piece of the Marketing-Industrial Complex — and sometimes I offer simple ideas that actually work.

If you enjoy this article, I invite you to subscribe to Marketing BS — the weekly newsletters feature bonus content, including follow-ups from the previous week, commentary on topical marketing news, and information about unlisted career opportunities.

Thanks for reading and keep it simple,

Edward Nevraumont


Closing down campuses 

In a July 6 statement, Harvard University announced that all course instruction for the 2020-21 academic year will be delivered online. The Faculty of Arts and Sciences also shared details about their plans to house a limited cohort of students on campus: 

[We will] bring up to 40% of our undergraduates to campus, including all first-year students, for the fall semester. Assuming that we maintain 40% density in the spring semester, we would again bring back one class, and our priority at this time is to bring seniors to campus. Under this plan, first years would return home and learn remotely in the spring. We also will invite back to campus those students who may not be able to learn successfully in their current home learning environment.

Moreover, Harvard intends to significantly restrict the movements and activities for any students living on campus: 

There will be restrictions on inter-house access to dining areas and to non-residential Harvard buildings.
We hope to provide some access to athletic and recreational facilities, as part of our commitment to overall wellness, though guidance for that is not yet final. 
No off-campus visitors will be allowed into Harvard buildings, and this will include enrolled Harvard students who are not in residence on campus.

As I discussed in “Remote Schools and Local Maxima,” colleges have regularly trumpeted the importance of campus experiences: 

If you survey graduates about their most valuable experiences, you will probably hear about student clubs, special events, and social programs. To that end, schools have recruited students under the premise that a vibrant campus experience is immensely valuable — and worth paying a premium to obtain.

In response to the news from Harvard, many pundits questioned the value of an Ivy League degree delivered via Zoom. How much is the Harvard experience “worth” if a student never sets foot in the campus’s hallowed halls?

According to Harvard, the remote experience is equally valuable to the on-campus version — tuition costs for 2020–21 remain unchanged. Harvard is not the only school to charge full tuition for a partial experience. Both Princeton and Yale also announced their plans last week. Princeton confirmed that ALL course activities will be conducted remotely; they offered students a 10% tuition rebate. Yale, like Harvard, will charge students the full tuition fees. In an (unreasonably?) ambitious plan, Yale aims to allow 60% of their students to return to campus, with in-person opportunities for “certain discussion sections, lab and studio courses, and collections-based courses.”


Ivy League ROI

Both Bill Gates and Mark Zuckerburg attended — but famously dropped out of — Harvard. And their careers turned out okay…

Research DOES conclude that graduates from Harvard earn, on average, more money than graduates from “less prestigious” colleges. Harvard grads also earn dramatically more than students who did not graduate from any college. 

Here is a much trickier research question: how much of that income disparity is due to studying at Harvard versus getting accepted by Harvard?

Three potential reasons explain why a Harvard grad earns more than a non-Harvard grad:

  1. The students who apply, are accepted, and attend Harvard are somehow different than students at other schools (Selection Effect)

  2. Successfully gaining admission and graduating from Harvard provides a signal to employers and others that a person would be a valuable employee or startup founder (Signalling Effect)

  3. Something happens during a student's time at Harvard (like learning skills or meeting people) that raises a student's earning potential (Human Capital) 

Quite likely, all three of these factors play a role. The selection effect is real: Harvard generally attracts self-disciplined students with high SAT scores and impressive accomplishments. Many Harvard students are also different because of their family situation: a not-insignificant number of world leaders and prominent figures send their children to Harvard. If you are a crown prince, for instance, your lifetime earning potential will be higher, regardless of your intelligence, test scores, or leadership.

The signalling effect is real, too. Boasting “Harvard” on a resume opens doors to jobs (or at least interviews). As one example of the power of signalling effects, think about news stories that exposed people who lied about their professional credentials. In many cases, people who fraudulently claimed to have graduated from prominent schools did, in fact, receive greater interest from employers. 

Measuring human capital development is more complicated. Suppose you demonstrated the academic and personal qualifications to gain admission to Harvard, but you declined for a personal reason, like staying at home to help your aging parents. Would spending four years of time and tuition at Harvard actually increase your lifetime earnings? 

Data seems to suggest the opposite. In 1999, Alan Krueger (Duke) and Stacy Berg Dale (Andrew Mellon Foundation) published a landmark investigation into the ROI for top colleges. 

An article from the Brookings Institute summarizes their process and results: 

[Krueger and Dale compared] students who entered Ivy League and similar schools in 1976 with students who entered less prestigious colleges the same year. They found, for instance, that by 1995 Yale graduates were earning 30 percent more than Tulane graduates, which seemed to support the assumption that attending an elite college smooths one’s path in life.
But maybe the kids who got into Yale were simply more talented or hardworking than those who got into Tulane. To adjust for this, Krueger and Dale studied what happened to students who were accepted at an Ivy or a similar institution, but chose instead to attend a less sexy, “moderately selective” school. It turned out that such students had, on average, the same income twenty years later as graduates of the elite colleges. Krueger and Dale found that for students bright enough to win admission to a top school, later income “varied little, no matter which type of college they attended.” In other words, the student, not the school, was responsible for the success.

Krueger and Dale seem to have definitively proved that the majority of the positive career impact of attending Harvard (or at least an Ivy league school) should be attributed to the selection effect (with potentially some impact from the signalling effect if the students who turned down the Ivy League listed their acceptance on their resume). The study, though, discounts any improvement in human capital, at least compared to graduation from the alternative schools these students chose.

If attending Harvard during “normal” times does not actually increase a person’s career earnings, what might happen to the degree’s value during a year (at least…) of Zoom-only classes? Let’s accept the idea that the on-campus Harvard experience adds at least SOME value through friendships with bright peers, conversations with prestigious professors, or participation in student clubs. Krueger and Dale's study suggests that if those experiences are worth anything, then a student could actually expect LOWER lifetime earnings by attending a “remote-only” Harvard than by going to a different college that offered in-person classes and activities.


Personal experience 

I regularly refer to this quote from Amazon founder Jeff Bezos: 

The thing I have noticed is when the anecdotes and the data disagree, the anecdotes are usually right. There's something wrong with the way you are measuring it.

Returning to the Krueger Dale study, there seems something “anecdotally wrong” with the “data” that a person derives no value from attending an Ivy league school like Harvard. I want to share my own experiences as an example.

While I attended a moderately selective undergraduate degree in Canada, my first experience with top-tier American universities was business school, where I earned an MBA from Wharton. Upon graduation I joined McKinsey & Company as a consultant.

Although Wharton and Harvard are the two most common sources for McKinsey consultants (there were over 70 of us who joined from my class that year), the company searches far and wide for the talent they need. Suppose I didn’t attend Wharton and instead went to the top Canadian option (at the time, it was Ivey Business School at the University of Western Ontario). I might have still gone through the same interview process and would have likely ended up with the same job and compensation upon graduation.

After four years at McKinsey, I was recruited to join Expedia. By this point in my career, neither the recruiter nor the hiring manager cared where I went to business school. In the “Ivey alternate dimension,” I would be six years out of business school with the exact same career and exact same income (with much lower student debt). Chalk one up for Krueger and Dale’s research.

People often say “the older you get, the less your school record matters.” Graduating from Harvard might help kickstart your career, but when you become the CEO of a major company, no head-hunter trying to poach you for “the next big job” cares about your college grades. 

But in my case, I know that the job I took after Expedia would not have happened without Wharton. 

A good friend I went to school with at Wharton let me know he was visiting Seattle. He worked for Warburg Pincus (a private equity firm) and they were looking to acquire a senior-care referral company called A Place for Mom. During dinner, he told me they were desperately looking for a CEO, but they needed someone who could oversee digital marketing AND a distributed sales force of 400+ agents AND manage relationships with their enterprise partners. My friend’s firm spoke with potential CEOs who possessed some of those skills, but it seemed impossible to find someone with expertise in all three areas.

My manager at Expedia was SVP of global online marketing; previously, he served as president of US, where he oversaw a large distributed call center AND managed relationships with enterprise customers like Marriott and Hilton. I introduced my Warburg Pincus friend to my Expedia manager. They hired him and I joined soon thereafter.

Without Wharton, I would not have known anyone at Warburg Pincus, let alone become good friends with the VP leading the acquisition of a company down the street from my condo. Without Wharton, I would never have heard about the opportunity at A Place for Mom, and neither would my manager at Expedia. In the non-Wharton version of my life, I’m pretty sure I would have accepted a job at Simon Property Group in Chicago. That role would probably have accelerated a promising career trajectory (the person I recommended to Simon after turning down their offer went on to become chief of staff for Jeff Wilke, CEO of Amazon’s Worldwide Consumer Business). The Wharton path, though, led to A Place for Mom — an experience that defined the rest of my career.

Wharton played a key part of my next role as well. Another Wharton friend (and partner at Maveron Venture Capital) invited me to New York to help one of his portfolio companies — General Assembly. The GA team and I clicked. I joined the venture-backed company and two years later we sold to Adecco for over $400 million.

More Wharton: a classmate launched a startup, which I seed funded. It became my single greatest investment.

Both McKinsey and Expedia provided fulfilling experiences that set me up for the rest of my career. In theory, graduating from Ivey or comparable other business schools could have brought me that far. But financially, almost all of my net worth comes from the three opportunities that resulted from friendships I made at Wharton. Of course, I would have developed other friendships at different schools, but the chance that an experience at Ivey would have introduced me to two classmates who would go on to become partners in top-tier investment firms and a third who founded a very successful startup — all in the specific city I ended up in on the other side of the continent — seems very, very remote.

Now here is the thing I have realized about my career journey: if I went to Simon Property Group and Amazon instead of A Place for Mom and General Assembly, my income would actually have been higher. My wealth, on the other hand, would have been dramatically lower.

The vast majority of the money I accumulated during that time came from my equity stakes in those businesses. Krueger and Dale’s analysis focused exclusively on traditional income. I have yet to discover any research that considers the impact of business school graduation on a person’s ability to gain equity in companies. And that’s an essential piece of information. As people move further along the wealth curve, income matters less and less. A 2019 scholarly publication by Andrea L. Eisfeldt, Antonio Falato, and Mindy Z. Xiaolan concluded that “equity based compensation represents almost 45% of total compensation to high-skilled labor.” 

Krueger and Dale suggest that attending a top-tier school doesn’t really matter. But maybe researchers aren’t measuring what really matters. 

In 2017, Crunchbase surveyed the alma maters of startup founders who raised more than $1 million. Harvard, Stanford, and MIT dominated the list. Crunchbase followed up the next year with an analysis of which schools the CEOs of those startups attended. Harvard and Stanford held an even more dominant position. Statista looked at an even smaller subset — founders of “unicorns” (the name given to privately held startups with a valuation over $1 billion). Harvard and Stanford appeared more frequently, by almost an order of magnitude, than the other schools. To put this information in perspective, these are ABSOLUTE numbers. Harvard and Stanford each admit about 2000 new students per year, whereas the entire University of California system (number three on Statista’s list) admits about 56,000. 

The founder of a billion-dollar startup might not earn a high salary, but I think we can agree their “real” compensation is not accurately reflected in research that tries to identity the ROI of top-tier schools. 


Connections Matter 

While Ivy League graduates have many diverse ambitions, only a few will become dictators of their home countries. And those students might realize tremendous value from their degree. In a 2019 research publication, three Finnish researchers shared the following conclusions: 

Educated dictators are more attractive to foreign investors. We obtain strong evidence that greater educational attainment of the leader is associated with higher FDI [Foreign Direct Investment]… By contrast, the leader’s age, and political experience have no relationship with FDI. 

Signalling effects might explain some of the results (the authors found that economics degrees are incrementally helpful), but I expect the graduates-turned-dictators benefitted from the network they developed while in school. When you want to raise money, it helps to have friends with money to lend.

Of course, the most important connection in your life has nothing to do with business: your spouse. A 2017 article in The Economist featured some financial information about married couples: 

People tend to marry spouses with similar levels of education. They also know that “assortative mating”, as the practice is called in the jargon, is exacerbating income inequality… One implication of assortative mating is that most estimates of the returns on investment in a university education err on the low side, as they fail to take spouses’ earnings into account. Research from the Federal Reserve Bank of New York finds that the annualised return on investment for a four-year bachelor’s degree in America rose sharply between 1980 and 2000 but has since stabilised at around 15%. Our calculations show that, if a spouse’s income is added to a person’s own, the returns to higher education have increased steadily since 2000, now reaching 18%. 

Many professionals meet their significant others in college. And on dating platforms, people can — and commonly do — filter prospective matches according to education level. (You can imagine that “Harvard graduate” is an attractive lure on a dating profile, especially for another Ivy League graduate). Even if your own personal income is unaffected by the school you attend, the campus you select does influence who you end up marrying (and their income potential). Even if their income is entirely due to selection effect, it still changes who you end up “selecting.”

As a student, you can’t predict the future accomplishments of your classmates. But the type of college you attend will certainly impact your peers’ likelihood of ending up in positions to share career and investment opportunities with you. 

Relationships with professionally successful friends and spouses — and maybe even dictators — can lead to (potentially) high equity gains, which are not measured by research surveys like the one published by Krueger and Dale. 

Time for the million-dollar question: if you were accepted to Harvard, should you still go? If you care about ROI — even if your first year (or two) of classes will be the equivalent of fancy YouTube videos, I think the answer is still “Yes!”

As Samo Burja (a Research Fellow at the Long Now Foundation) posted on Twitter, it doesn’t matter if Harvard’s classes are remote or in-person. The school is not charging for classes.  As Samo Burja (a Research Fellow at the Long Now Foundation) posted on Twitter, it doesn’t matter if Harvard’s classes are remote or in-person. The school is not charging for classes. 

I appreciate that most Marketing BS readers are (far) too old to consider applying for Harvard next year. Here are some marketing takeaway ideas from today’s newsletter: 

  1. What you say you are selling is often not the thing you are actually selling

  2. What people say they are buying is not the thing they are actually buying

  3. The metrics that you think measure success are often measuring the wrong things

I expect to share more perspectives about education in the next few weeks, so I would love to hear your thoughts in the comments section. I know school and wealth are touchy subjects for some people and I am very interested in hearing a range of opinions. Subscribers (only) can post comments at the bottom of this message, or you can just reply to this email.

Keep it simple,


Questions for your marketing team:

  1. Why are customers really buying your product, beyond the obvious reasons?

  2. What factors drive your success but might be getting missed by your metrics?

  3. How can you raise the status of the act of buying or consuming your product?

If you enjoyed this article, I invite you to subscribe to Marketing BS — the weekly newsletters feature bonus content, including follow-ups from the previous week, commentary on topical marketing news, and information about unlisted career opportunities.


Edward Nevraumont is a Senior Advisor with Warburg Pincus. The former CMO of General Assembly and A Place for Mom, Edward previously worked at Expedia and McKinsey & Company. For more information, including details about his latest book, check out Marketing BS.


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