Do grades in higher education matter for labour market rewards? A multilevel analysis of all Norwegian graduates in the period 1990–2006

Abstract

This paper examines the effects of grades from higher education on labour market outcomes. Economic theory predicts that grades are rewarded in the labour market because employers regard them as an expression of valuable skills or a signal of other sought after attributes. Social closure, however, may give reason to expect no effects. Whether good grades are rewarded in the labour market is thus uncertain. This paper addresses this question by examining whether employers tend to reward good grades in the form of employment and higher income. Previous research has demonstrated that the returns to education vary according to structural–institutional labour market settings. We examined the interaction effects between grades and field-specific characteristics and between grades and sector by analysing data on all graduates in these educational programmes at Norwegian universities and university colleges from 1990 through 2006. The education data are linked with multiple other data sources such as the national tax register and the national employment register. We find that good grades have positive effects on both income and employment and that these effects are influenced by both the type of education and sector.