The Big Sort: College Reputation and Labor Market Outcomes

Abstract

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.

The Value of Postsecondary Credentials in the Labor Market: An Experimental Study

“…First, employers appear to view for-profit postsecondary credentials as a negative signal of applicant quality, particularly when objective measures of quality such as a licensing exam are unavailable. Our findings echo those of MacLeod et al (2015), who find that making national college exit exam scores in Colombia available to students and employers reduces the earnings return to college reputation.…”

“…Consistent with this hypothesis, MacLeod et al (2015) find that the introduction in Colombia of national college exit exams, a new potential signal of skills, reduced the earnings return to college reputation.…”

Race and Stratification in College Enrollment Over Time

“…Long & Kurlaender, 2009;Melguizo, 2006;Smith & Stange, 2015), and the probability of completing has implications for labor market outcomes and for the ability to manage student loan debt (e.g., Dynarski, 2015). Selectivity, across the full distribution of schools, is also related to initial earnings and earnings growth (MacLeod, Riehl, Saavedra, & Urquiola, 2015;Scott-Clayton, 2016) and even provides a premium to already-lucrative majors, like business and the sciences (Eide, Hilmer, & Showalter, 2016). However, racial-minority students are less likely to choose high-paying majors (Carnevale, Strohl, & Melton, 2013), which-although we do not track majors in this article-suggests that the economic implications of enrollment selectivity gaps are likely only exacerbated by differences in major choice.…”