The Big Sort: College Reputation and Labor Market Outcomes
73 Pages Posted: 26 Jun 2015
Date Written: June 2015
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.
Keywords: education, Colombia, wage formation
JEL Classification: I21, I23, I24, I25, I26, J01, J24, J3
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