Institutional Devaluation and the Breakdown of Educational Signaling in Low-Trust Labor Markets

• In Event: Sociology of Education Section Roundtables
  In Refereed Roundtable (60 minute): Table 8. Pathways and Returns to Higher Education

Abstract

Signaling theory predicts that educational credentials reduce employer uncertainty by reliably indicating candidate quality. This paper challenges that assumption, arguing that in low-trust labor markets where institutional confidence in higher education is weak, university degrees lose their signaling function — and may actively signal traits employers seek to avoid.

Drawing on 50 in-depth interviews with employers, five focus groups with recent graduates, and survey data from approximately 33,000 employers in Uganda, I examine how institutional devaluation of higher education shapes employer interpretations of university credentials. When employers lack confidence that universities reliably produce competent, work-ready graduates—due to concerns about grade inflation and credential fraud, and the absence of established school-to-work pipelines—degrees cease to function as efficient hiring signals. Instead, employers develop alternative heuristics to manage uncertainty.

I identify three mechanisms through which institutional devaluation reshapes hiring. First, employers treat degrees as poor proxies for practical competence, associating university training with abstract theoretical knowledge disconnected from workplace demands. Second, because employers expect to train new hires regardless of educational background, the critical hiring criterion shifts from what candidates know to whether they can be taught—and credentialed graduates are often perceived as resistant to instruction. Third, in low-trust labor markets where workers are assumed to prioritize their own mobility over organizational loyalty, a degree amplifies this distrust—signaling that a candidate has better options elsewhere and will leave once those options materialize; they are risky training investments.

These findings extend signaling theory to institutional contexts where the traits bundled with credentials diverge systematically from employer needs. The paper contributes to research on hiring evaluation and comparative labor markets by showing that credentialing systems reduce hiring uncertainty only when the signals they transmit align with prevailing employer concerns—a condition that low-trust labor markets may structurally undermine.

Author

• Gabrielle Lamont-Dobbin, Columbia University