University rankings and signalling

On Tuesday I wrote a post on market-based pricing and the impact on university rankings. But, to what extent do university rankings matter for our graduates? From the NZ Herald on Monday:

Kiwi employers working through a pile of CVs are unlikely to care how applicants' place of study compares on international rankings.

They may have noted last week's media reports on the latest university rankings that showed institutions here losing ground or stagnating.

But the University of Auckland's fall of 11 places on the annual Times Higher Education (THE) rankings won't work against the vast majority of its job-seeking alumni. "Generally speaking, the conversation that we have around university degrees with clients is around a demonstrated ability to commit and complete a degree," said Vanesha Din, a manager at recruitment firm Michael Page Finance.

I've written before on the value of tertiary education as a signal to employers of a student's quality (specifically for economics, see here and here). The article agrees - the value of a degree is a "demonstrated ability to commit and complete a degree". This is a signal of the student's quality as an employee (committed, hard-working, etc.), because a potential employee without a degree can't easily demonstrate those same qualities of commitment and hard work. The ranking of the university doesn't necessarily add much to the quality of the signal. That is, unless everyone that goes for a position has a degree. From the article:

However, the rankings do matter to some employers with senior technical roles including in law, medicine, specialised engineering and financial services.

Every lawyer has to have a law degree, and every doctor has to have a medical degree. So there is no signalling benefit from the degree itself - a student can't signal their quality as an employee with the degree, because all other applicants will have a degree too. The quality of the student then has to be signalled by the quality of the institution they studied at, rather than the degree itself. An effective signal has to be costly (degrees at top-ranked institutions are costly) and more costly to lower quality students (which seems likely in this case, because lower quality students would find it much more difficult to get into a top-ranked institution).

Of course, top students are weighing up the benefits of the higher quality signal provided by graduating from a top-ranked university (rather than a lower-ranked university), against the higher costs of attending the top-ranked university. Sometimes the higher-ranked university won't win out in this evaluation but at the margin, the university rankings will make a difference to this decision, and they should especially make a difference in areas like law and medicine (as in the example in the Herald article).