Enrico Moretti

First name
Enrico
Last name
Moretti

Year of Publication
2010
Abstract

Although economists acknowledge that various indicators of educational attainment (e.g., highest
grade completed, credentials earned) might serve as signals of a worker’s productivity, the practical
importance of education-based signaling is not clear. In this paper we estimate the signaling value
of a high school diploma, the most commonly held credential in the U.S. To do so, we compare the
earnings of workers that barely passed and barely failed high school exit exams, standardized tests
that, in some states, students must pass to earn a high school diploma. Since these groups should, on
average, look the same to firms (the only difference being that "barely passers" have a diploma while
"barely failers" do not), this earnings comparison should identify the signaling value of the diploma.
Using linked administrative data on earnings and education from two states that use high school exit
exams (Florida and Texas), we estimate that a diploma has little effect on earnings. For both states, we
can reject that individuals with a diploma earn eight percent more than otherwise-identical individuals
without one; combining the state-specific estimates, we can reject signaling values larger than five or six
percent. While these confidence intervals include economically important signaling values, they exclude
both the raw earnings difference between workers with and without a diploma and the regression-adjusted
estimates reported in the previous literature.

Number
559
Date Published
09/2010
Publication Language
eng
Citation Key
8230
Card, D., Mas, A., Moretti, E., & Saez, E. (2010). Inequality at Work: The Effect of Peer Salaries on Job Satisfaction. Retrieved from http://arks.princeton.edu/ark:/88435/dsp01qj72p715n (Original work published 09/2010AD)
Working Papers