Signaling Specific Skills and the Labor Market of College Graduates

Abstract

We study how signaling skills specic to the major aects labor market outcomes of college graduates. We rely on census-like data and a regression discontinuity design to study the impacts of a well-known award given to top performers on a mandatory nationwide exam, which constitutes a graduation requirement for college seniors in Colombia. Students who can rely on the signal when searching for a job have a wage premium of 7 to 12 percent compared to otherwise identical students. This positive return persists even ve years after graduation. The signal mostly benets workers who graduate from low-reputation colleges, and allows workers to nd jobs in more productive rms and in sectors that better use their skills. We rule out that the positive wage returns are explained by human capital. The signal favors mostly less advantaged groups, implying that less information frictions about students' skills could potentially reduce earnings gaps. Our results imply that information policies like those that formally certify specic skills can potentially improve the eciency in talent allocation of the economy and level the playing eld for workers who come from disadvantaged backgrounds.