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Why Is Wall Street So Addicted to Prestige Colleges?

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Thomas Barwick | Digital Vision | Getty Images

A recent paper by Kellog management professor Lauren Rivera “uncovers” something most of us already know: elite investment banks, consultancies and law firms are education snobs.

From her abstract:

In the following article, I analyze how hiring agents in top-tier professional service firms use education to recruit, assess, and select new hires. I find that educational credentials were the most common criteria employers used to solicit and screen resumes. However, it was not the content of education that elite employers valued but rather its prestige. Employers privileged candidates who possessed a super-elite (e.g., top 5) university affiliation and attributed superior cognitive, cultural, and moral qualities to candidates who had been admitted to such an institution, regardless of their actual performance once there. However, attendance at a super-elite university was insufficient for success in resume screens. Importing the logic of elite university admissions, firms performed a secondary resume screen on the status and intensity of candidates’ extracurricular accomplishments and leisure pursuits. I discuss these findings in terms of the changing nature of credentialism and stratification in higher education to suggest that participation in formalized extracurricular activities has become a new credential of moral character that has monetary conversion value in labor markets.

The snobbery is very precise: you have to go to Harvard, Princeton, Yale, Stanford and, perhaps, Wharton. And the reason for this is not the belief that these schools provide the best education—in fact, many of those evaluating job candidates were critical of the education offered by these schools. Rather, it seems that the elite firms are simply using getting into Harvard, Yale, Princeton, Standford and Wharton as a proxy for intelligence.

University of Oregon physics professor Steve Hsu quotes from the paper:

... So-called “public Ivies” such as University of Michigan and Berkeley were not considered elite or even prestigious in the minds of evaluators (in contrast, these “state schools” were frequently described pejoratively as “safety schools” that were “just okay”). Even Ivy League designation was insufficient for inclusion in the super-elite. For undergraduate institutions, “top-tier” typically included only Harvard, Princeton, Yale, Stanford, and potentially Wharton (University of Pennsylvania's Business School). By contrast, Brown, Cornell, Dartmouth, and University of Pennsylvania (general studies) were frequently described as “second tier” schools that were filled primarily with candidates who “didn’t get in” to a super-elite school.

Definitions of “top-tier” were even narrower for professional schools, primarily referring to Yale, Harvard, Stanford, and to a lesser extent Columbia law schools, and Harvard, Wharton (University of Pennsylvania), and Stanford business schools.7 A consulting director (white, female) illustrates, “Going to a major university is important. Being at the big top four schools is important. Even it's a little more important being at Harvard or Stanford [for MBAs]; you know it's just better chances for somebody.” A consultant (Asian-American, male) described of being at a “top” school, “It's light-years different whether or not we are going to consider your resume.”

Evaluators relied so intensely on “school” as a criterion of evaluation not because they believed that the content of elite curricula better prepared students for life in their firms – in fact, evaluators tended to believe that elite and, in particular, super-elite instruction was “too abstract,” “overly theoretical,” or even “useless” compared to the more “practical” and “relevant” training offered at “lesser” institutions – but rather due to the strong cultural meanings and character judgments evaluators attributed to admission and enrollment at an elite school. I discuss the meanings evaluators attributed to educational prestige in their order of prevalence among respondents…

In line with human capital, screening, and signaling accounts of the role of educational credentials in hiring (see Bills, 2003 for review), participants overwhelmingly believed the prestige of one's educational credentials was an indicator of their underlying intelligence. Evaluators believed that educational prestige was a signal of general rather than job-specific skills, most notably the ability to learn quickly. An attorney (white, female) described, “I’m looking for sponges. You know a kid from Harvard's gonna pick stuff up fast.” However, it was not the content of an elite education that employers valued but rather the perceived rigor of these institutions’ admissions processes. According to this logic, the more prestigious a school, the higher its “bar” for admission, and thus the “smarter” its student body. A consultant (white, male) explained, “The top schools are more selective, they’re reputed to be top schools because they do draw a more select student body who tend to be smarter and more able.” A law firm partner (white, male) agreed, “If they’re getting into a top-tier law school, I assume that person has more intellectual horsepower and, you know, is more committed than somebody who goes to a second or third tier law school.”

In addition to such an intelligence-based perspective on university admissions, evaluators frequently adopted an instrumental and unconstrained view of university enrollment, perceiving that students typically “go to the best school they got into” (lawyer, Hispanic, male). Consequently, in the minds of evaluators, prestige rankings provided a quick way to sort candidates by “brainpower.” When sorting the “mock” resumes, an investment banking recruiter (white, female) charged with screening resumes at her firm revealed how such assumptions played out in application review. She remarked, “Her [Sarah's] grades are lower but she went to Harvard so she's definitely well-endowed in the brain category…Jonathan… went to Princeton, so he clearly didn’t get the short end of the stick in terms of smarts.” This halo effect of school prestige, combined with the prevalent belief that the daily work performed within professional service firms was “not rocket science” (see Rivera, 2010a) gave evaluators confidence that the possession of an elite credential was a sufficient signal of a candidate's ability to perform the analytical capacities of the job. Even in the quantitatively rigorous field of consulting [HA HA HA], a junior partner (white, male) asserted, “I’ve come to the stage where I trust that if the person has gone to Wharton, they can do math.”

By contrast, failure to attend an “elite” school, as conceptualized by evaluators, was an indicator of intellectual failure, regardless of a student's grades or standardized test scores. Many evaluators believed that high achieving students at lesser ranked institutions “didn’t get in to a good school,” must have “slipped up,” or otherwise warranted a “question mark” around their analytical abilities. ...

An investment banker (white, female) expressed a sentiment that was common across firms, “The best kid in the country may be at like Bowling Green, right. But to go to Bowling Green, interview 20 kids just to find that one needle in the haystack doesn’t make sense, when you can go to Harvard it's like 30 kids that are all super qualified and great.”

The finding that elite employers largely restrict the bounds of competition to students at the nation's most elite universities is important because large-scale studies of status attainment have historically focused on estimating the effect of years of schooling or college completion rather than institutional prestige in explaining occupational outcomes.

Steve Hsu points out that, effectively, the hiring process of elite law firms and investment banks is being “outsourced” to college admissions officers.

It is odd that the soft firms, which market themselves to clients as being super-smart repositories of brainpower (of course this is largely a fiction; see point 3 above), would rely so heavily on university admissions committees. They effectively outsource a big chunk of due diligence on their most important investment (human capital) to a group of people whose judgement they somehow trust, but perhaps without detailed understanding. When I was on the faculty at Yale I knew people in admissions and it's not clear to me that they were the best able to spot potential in 18 year olds. In studies of expert performance admissions people are less good at predicting UG GPA than a simple algorithm. (The "algorithm" is simply a weighted sum of SAT and HS GPA!)

By the way, Hsu thinks this situation applies more to “soft firms”—law firms, investment banks, and consultants where the actual performance of the firm is harder to measure than “hard firms”—such as hedge funds and technology companies—where he thinks prestige is likely to count for less.

The question is why so many firms do this? One answer is that it seems to work—it gets them the right candidates so why mess with the formula? If you add in an efficient market hypothesis, you could say that if using college admissions as a proxy for fitness at an elite firm was a mistake, some firm would take the opportunity to hire all the under-demanded smart kids from other colleges.

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