Mike Spence - What a Nobel Laureate Thinks AI Does to Education

Signaling is a hugely important part of every labor market interaction, but it wasn't well understood until my guest today introduced the idea 50 years ago. Now the value of signals are changing rapidly, and he's thinking carefully about what comes next. Mike Spence is a Nobel laureate in economics and former dean at both Harvard and Stanford. His work on information asymmetry and growth is so foundational to how economists think about markets and development. Here's our talk. Welcome to The Economics of Work. I'm honored to welcome Mike Spence, Nobel laureate and former dean at both Harvard and Stanford, and just a really clear thinker and writer on so many important topics. Mike, welcome to the show.

Well, it's wonderful to be with you. Thank you.

Yeah, thank you. So I want to start with labor market signaling, which is where you first really kind of made your mark. And that's what you won the Nobel Prize for 25 years ago. So happy 25th anniversary. You know, in a world with kind of open access to AI, where anyone can just generate like really high quality, tailored content, Are the labor market signals that have previously been delivered, like job applications, cover letters, things like that, are they eroding? And if so, where does that take us?

So there's various dimensions of this. It's a really interesting question. So let me give the short answer to your question. The answer is yes, they are eroding because we have these powerful machines that can sort of imitate kind of anything you want them to imitate. And so whatever, you know, subtle signals were delivered in, you know, CVs and other things that people submitted, you know, I think are going to be muted, meaning they're going to lose their informational content as the market naturally evolves. And, you know, I mean, I think there was a kind of flamboyant article on this general subject in which, you know, the basic idea, you know more about this than I do, but the There's a flood of CVs coming in, most of them generated by AI. And then on the employer side, there's a flood of software designed to weed out all that stuff. So you kind of have a CV screening war. you know, where nothing emerges of a traditional kind anyway. I mean, I think markets generally evolve. And so there will be a process of looking for signals that don't lose their informational content over time. Now, what exactly those will be, I think, is a different question. But I would not want to be on the side of a debate that said this isn't going to have any impact on the informational structure of the labor market, for sure.

Yeah. So I could see, you know, kind of two contradictory paths. Like one possibility is like we just get completely signal jammed and like people default to, you know, other forms of signaling or networks or something. And like, you know, we just have less information in this market. Another possibility is like, let's say you have this situation where, you know, you have these AI generated applications and this AI generated screener. But they're actually really good. You know, they can capture like a lot of dimensionality of someone's character and the nature of a job. So, yeah, let's say we're