Harvard students are paid more. Ever thought why?

What’s the purpose of any interview?

If an employer doesn’t know about the candidate maybe with the help of CV he/she can guess, say, 20% about the candidate. But that’s not enough to hire the candidate as an error in selecting the wrong candidate is way more than what we imagine.

So there is always an information gap between what the candidate knows and what the employer think the candidate knows.

In economics, it’s called information asymmetry.

So if the employer wants to reduce the error of selecting the wrong candidate, he/she should reduce the information asymmetry. Similar is the process of interviewing the candidate; to know more about him to reduce the information gap. The more you reduce the gap the more are the chances of selecting the right candidate.

But why the filtering process(CV) is required, if you can select the better candidate through interviewing?

Let’s imagine there are 1000 eligible candidates. Cost of interviewing one candidate be $100. So the total interviewing cost will be $100,000 and that’s huge. In order to minimize this cost, the filtration process is adopted, based on various criteria. By using 2 to 3 filters (academic achievements, aptitude test, etc.) they choose, say, 20 from those 1000 eligible candidate. Now the cost of filtering in conducting those written tests and verifying the candidates’ profile won’t cross $10 per candidate making the total filtering cost as $10,000.

Hurray, saved $88,000.

The problem is, by filtering based on the candidates’ academic performance or aptitude tests, the employers are increasing the risk of selecting the wrong candidate. For example, a candidate might be good in academics without any practical knowledge or a candidate with expertise might not had done well in academics.

Consequently, the employer is looking for the best way, a shortcut, to filter the candidates such that instead of filtering the candidates, they directly approach the filtered candidates which is through the top institutes. Let’s see how.

Which institute has a rigorous selection process for their candidate, Harvard or College X from City Y?
Exactly, that’s the reason why the employer prefer Harvard than any other colleges.

So why do they pay lot more to a candidate from Harvard than what they pay for a candidate from college X?

The institutes know this and it’s the time to play their game. 
“See, we have a rigorous selection process and rigorous curriculum, so whoever graduates from our institute is the best.” So, they are signalling to the students that we are the best institute. Then a student joins the institute and signaling to the employer that I’m the best.

You play the shortcut, you pay the price somewhere. Employers don’t want to evaluate all the qualified students, in order to save a huge amount (evaluation cost which includes the errors in evaluation too, choosing the wrong candidate) and pay certain percentage of that savings as salary to the so called “Harvard people” not because they are brilliant.