Scandinavian Working Papers in Economics

Working Paper Series, Center for Labor Studies,
Uppsala University, Department of Economics

No 2010:9: College Achievement and Earnings

Jonathan Gemus ()
Additional contact information
Jonathan Gemus: Uppsala Center for Labor Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: I study the size and sources of the monetary return to college achievement as measured by cumulative Grade Point Average (GPA). I rst present evidence that the return to achievement is large and statistically signi cant. I nd, however, that this masks variation in the return across di erent groups of people. In particular, there is no relationship between GPA and earnings for graduate degree holders but a large and positive relationship for people without a graduate degree. To reconcile these results, I develop a model where students of di ering and initially uncertain ability levels choose e ort level in college and whether to earn a graduate degree. College achievement and graduate attainment are allowed to increase human capital and be used by employers to screen workers. In the separating equilibrium studied, workers who earn a graduate degree can e ectively signal high productivity to employers. As a result, employers use undergraduate GPA-a noisy signal of productivity-to screen only the workers who do not hold a graduate degree. Viewing the empirical results through the lens of this equilibrium, the zero GPA-earnings relationship for graduate degree holders and the positive and large relationship for people without a graduate degree suggests that most of the return to achievement net of graduate educational attainment is driven by sorting.

Keywords: keywords are Schooling Costs; Educational Attainment; Financial Aid Policies

JEL-codes: I20; I28; J24

45 pages, January 4, 2010

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