The Big Sort : College Reputation and Labor Market Outcomes

Spence (1973) noted that individuals' choice of educational quantity--measured by years of schooling--may stem partially from a desire to signal their ability to the labor market. This paper asks if individuals' choice of educational quality--measured by college reputation--may likewise signal their ability. We use data on the admission scores of all Colombian college graduates to define a measure of reputation that gives clear predictions in a signaling framework. We find that college reputation, unlike years of schooling, is correlated with graduates' earnings growth. We also show that Colombia's staggered rollout of a new signal of skill--a college exit exam--reduced the earnings return to reputation and increased the return to individual admission scores. These results are consistent with the hypothesis that a college's reputation provides information about the ability of its student body and about its value added, broadly understood