The economic consequences of setting foot in a college in Colombia

Using administrative data, I track the path of all the secondary school graduates in Colombia from 2002 to 2012 that enter higher education and/or the formal labor market (5.4 million graduates). I compare graduates within the same secondary school and cohorts to estimate the premium of higher education. I estimate the sheepskin effect by exploiting the phenomenum of students who enrolled in the labor market after finished 90% or more of the college course-work but did not graduate and comparing them against workers that did earn a bachelors degree. Using a modified Mincer equation, I find that the Colombian labor market values a college graduate at the time of graduation the same as a secondary school graduate with five years of formal labor market experience. I also find high positive correlations between the quality of higher education institutions and students' skills and earnings, and between on-time graduation and earnings. High-quality higher education institutions boost the entry-level salary for their graduates, but this boost fades over time as others gain experience and the graduates' skills as workers are revealed. I find evidence that higher education is slowly reducing the gender income gap and improving income distribution in Colombia. Finally, the sheepskin effect is about 12.6% on average and the returns for bachelors, diplomas, and masters are 15.1%, 33.6%, and 53.2%, respectively.