We explore how college reputation affects the “big sort,” the process by which students choose colleges and find their first jobs. We incorporate a simple definition of college reputation—graduates' mean admission scores—into a competitive labor market model. This generates a clear prediction: if employers use reputation to set wages, then the introduction of a new measure of individual skill will decrease the return to reputation. Administrative data and a natural experiment from the country of Colombia confirm this. Finally, we show that college reputation is positively correlated with graduates' earnings growth, suggesting that reputation matters beyond signaling individual skill. (JEL I23, I26, J24, J31)
Spence (1973) noted that individuals' choice of educational quantity-measured by years of schooling-may stem partially from a desire to signal their ability to the labor market. This paper asks if individuals' choice of educational quality-measured by college reputation-may likewise signal their ability. We use data on the admission scores of all Colombian college graduates to define a measure of reputation that gives clear predictions in a signaling framework. We find that college reputation, unlike years of schooling, is correlated with graduates' earnings growth. We also show that Colombia's staggered rollout of a new signal of skill-a college exit exam-reduced the earnings return to reputation and increased the return to individual admission scores. These results are consistent with the hypothesis that a college's reputation provides information about the ability of its student body and about its value added, broadly understood.
For useful comments we thank Joseph Altonji, Caroline Hoxby, Kevin Stange, and participants of the NBER conference on the productivity of higher education. All remaining errors are our own. The authors acknowledge financial support from the NBER conference on the productivity of higher education and no additional funding sources. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
Spence (1973) noted that individuals' choice of educational quantity-measured by years of schooling-may stem partially from a desire to signal their ability to the labor market. This paper asks if individuals' choice of educational quality-measured by college reputation-may likewise signal their ability. We use data on the admission scores of all Colombian college graduates to define a measure of reputation that gives clear predictions in a signaling framework. We find that college reputation, unlike years of schooling, is correlated with graduates' earnings growth. We also show that Colombia's staggered rollout of a new signal of skill-a college exit exam-reduced the earnings return to reputation and increased the return to individual admission scores. These results are consistent with the hypothesis that a college's reputation provides information about the ability of its student body and about its value added, broadly understood.
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