Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2019:1: The Impact of Grade Inflation on Higher Education Enrolment and Earnings

Martin Nordin (), Gawain Heckley () and Ulf-G. Gerdtham ()
Additional contact information
Martin Nordin: Swedish Institute for Food and Agricultural Economics, Lund University, Sweden
Gawain Heckley: Health Economics Unit, Department of Clinical Sciences, Lund University, Sweden
Ulf-G. Gerdtham: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: Although grade inflation is unfair and may imply inefficient allocation of human resources, current knowledge of grade inflation effects on individual outcomes is scarce. One explanation is probably the challenge of measuring and estimating causal grade inflation effects. This study examines the consequences of grade inflation at the upper secondary education level on enrolment in higher education and earnings for Sweden. Rigorous diagnostic testing supports our empirical approach. Grade inflation at the school level affects earnings mainly through choice of university and the chosen field of education, rather than through enrolment per se, because attending universities of higher quality and pursuing high-paying fields of education have a substantial impact on earnings. On the other hand, high-skilled students attending upper secondary schools without grade inflation and, unexpectedly, low-skilled women attending "lenient" schools are harmed by this. This causes extensive unfairness and, plausibly, detrimental welfare effects.

Keywords: grade inflation; upper-secondary education; higher education; earnings

JEL-codes: I20; I21; J24

40 pages, January 10, 2019

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