There’s a very interesting debate going on among economist bloggers on the "signaling" theory of education. Would you rather have a [insert prestigious college name here] diploma and no education from there, or the [prestigious college name] education with no diploma? "The signaling theory says that to a significant extent, education does not increase workers’ productivity. Instead, the fact that you obtain an education shows that you were more productive all along, which makes employers want to hire you."
Gary Becker, perhaps the most influential living economist, argues that signaling benefits have tailed off considerably, to the point where it doesn’t matter if someone went to Stanford or the University of Phoenix – after their first job, their overall productivity and success will trump whatever degree they hold. "Pay adjusts to productivity, not education credentials."
Tyler Cowen offers a novel point that education is about "self-acculturation." It’s about surrounding yourself with peers and social attitudes that form a self-image which values intelligence, wealth, etc. "Your identity is shaped by what you are doing, and your peers, between the critical ages of thirteen to your early twenties. Those are precisely the years covered by our educational system."
Bryan Caplan rebuts these points. "Sure, employers eventually figure out how productive a worker is IF they hire him. But interviewing is expensive, and so is getting rid of disappointing workers. So it still makes sense to use credentials to make interviewing and hiring decisions: You save valuable time, and reduce the chance of hiring unproductive workers."
I will chime in with my own two cents later.