College Achievement and Earnings

Jonathan Gemus ()

No 2010:1, Working Paper Series from Uppsala University, Department of Economics

Abstract: I study the size and sources of the monetary return to college achievement as measured by cumulative Grade Point Average (GPA). I first present evidence that the return to achievement is large and statistically significant. I find, however, that this masks variation in the return across different 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 differing and initially uncertain ability levels choose effort 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 effectively 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 reutrn to achievement net of graduate educational attainment is driven by sorting.

Keywords: Returns to Education; Academic Achievement; Signaling; Human Capital (search for similar items in EconPapers)
JEL-codes: D82 I20 I21 J24 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2010-01-27
New Economics Papers: this item is included in nep-edu, nep-hrm and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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