Heterogeneous Returns to College Selectivity and the Value of Graduate Degree Attainment

Abstract

Existing studies on the returns to college selectivity have mixed results, mainly due to the difficulty of controlling for selection into higher quality colleges based on unobserved ability. Moreover, researchers have not considered graduate degree attainment in the analysis of labor market returns to college selectivity. In the first chapter, I estimate the causal effect of college selectivity on wages including graduate degree attainment. I control for both observed and unobserved selection by extending the model of Carneiro, Hansen, and Heckman (2003). There are two channels through which college selectivity affects future labor market outcomes. The first is the wage returns to college selectivity conditional on graduate degree attainment. The second is the effect of college selectivity on the probability of graduate degree attainment and the wage returns to graduate degree attainment. The results show that graduating from a college of one standard deviation higher selectivity leads to a 3.7% higher hourly wage ten years after college graduation regardless of graduate degree attainment. In addition, a one standard deviation increase in college quality increases the expected returns to graduate degree attainment by 0.8% (4.3% increase in the probability of graduate degree attainment multiplied by 18.6% returns to a graduate degree).