Labor Market Returns to Two- And Four-Year College: Is A Credit a Credit And Do Degrees Matter?


ln CPS data, the 20% of the civilian labor force with 1-3 years of college earn 15% more
than high school graduates. We use data from the National Longitudinal Study of the High School
Class of I972 which includes postsecondary transcript data and the NLS Y to study the distinct returns
to 2-year and 4-year college attendance and degree completion. Controlling for family income and
measured ability, wage differentials for both 2-year and 4-year college credits are positive and
similar. We find that the average 2-year and 4-year college student earned roughly 5% more than
similar high school graduates for every year of credits completed. Second, average bachelor and
associate degree recipients did not earn significantly more than those with similar numbers of college
credits and no degree, suggesting that the credentialling effects of these degree are small. We report
similar results from the NLSY and the CPS.
In addition to controlling for family background and ability measures, we pursue two IV
strategies to identify measurement error and selection bias. First, we use self-reported education as
an instrument for transcript reported education. Second, we use public tuition and distance from the
closest 2-year and 4-year colleges as instruments, which we take as orthogonal to schooling
measurement error and other unobserved characteristics of college students. Although research over
the past decade has been preoccupied with selection bias, the two biases roughly cancel each other,
suggesting that the results above are, if anything, understated.

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American Economic Review, Vol. 83, No. 3
Working Papers