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.

Reputation and School Competition

“…Since then, the integration of the college market (due to, for example, lower transport costs) led to sorting as the top schools became more selective and the bottom ones less so. 17 MacLeod et al (2015) show that in the past 15 years Colombia has experienced qualitatively similar trends: rising selectivity at top colleges and overall increasing stratification by ability-e.g., the R 2 on a regression of admissions test scores on a full set of college dummies has trended up during this period.…”

Should I Stay or Should I Go? Career Choices for Young Workers in Latin America

“…Nonetheless, the recent educational expansion that has taken place in these countries may also imply that the new cohort of college‐educated workers may enjoy different returns than those in the 1983–1984 cohort. The returns for college‐educated workers may further vary by college quality, as shown in Macleod et al (). Last, since our results show the returns to formal sector experience for less educated workers in both countries are positive and significant, we argue that policymakers should design policies based around helping young workers accumulate experience in the formal sector.…”

Is Education Consumption or Investment? Implications for School Competition

“…We focus instead on the return to attending different schools, and the implications this has on the effects of school competition. This relates to theoretical and empirical work on the returns to school identity, e.g., Dale and Krueger (2002), Hoekstra (2009), Saavedra (2009), Chetty et al (2014b), Urquiola (2015), andMacLeod et al (2017).…”

“…However, labor markets do feature transaction costs. For example, firms do not perfectly observe all potential employees' attributes, and they tend to recruit at a limited number of schools (MacLeod et al, 2017, Weinstein, 2017. Hence, rational income-maximizing households may prefer schools that provide the best job placements rather than the most skills.…”