The returns to an additional year of education for college graduates

Abstract

This paper estimates the returns to an additional year of advanced undergraduate education among students who would otherwise graduate with a bachelor’s degree using administrative student records merged with survey data on earnings from the largest public university in Singapore. We use a regression discontinuity design that exploits the fact that in some faculties, enrollment in the fourth (honors) year is governed by a grade-based eligibility rule. Students with average grades in their third year just above the threshold are significantly more likely to complete the fourth year and have higher earnings after graduation relative to students who narrowly missed the grade cutoff. The implied earnings return to the additional year of college is about 12 % six months after graduation. Linked administrative tax data confirm persistent gains in the longer run for at least 4 years after graduation. Moreover, the return remains substantial even after the university lowers the threshold to encourage more students to enroll in the fourth year, suggesting an effect not entirely driven by signaling of student ability.