High school graduates earn a lot more than dropouts. But how much does the diploma itself matter? Does getting that piece of paper tell employers something about the value of a potential employee over and above telling the employer that the student mastered a high school level education? In economist-ese, does the diploma have signal value?
A forthcoming paper by Paco Martorell and Damon Clark suggests that the piece of paper per se doesn’t have a great value, maybe something like a six percent wage boost. Here’s what the authors did. They looked at students in Florida and Texas where getting a diploma requires passing a high school exit exam. Specifically, they compared students who just barely missed the exam cutoff to earn their diploma with students who just barely made the cutoff. Since the scores for the two sets of students are hardly different, we know their abilities are nearly the same. It’s just that one group got the sheepskin and the other didn’t.
In particular, the researchers looked at students who’d reached their last chance to pass the exam at the end of 12th grade. (So these were all fairly marginal students.) The “last chance” exam doesn’t perfectly determine who gets the diploma (some students pass the exam but don’t pass their coursework and some students find a way to get around the “last chance” requirement and do get a diploma), but this picture from the authors shows that the exam cutoff mostly determines who gets the diploma. (The picture is for Florida students.)
The authors next tracked post-graduation wages. Is there a jump in wages for students who just made the exam cut-off? Now look at this second picture, done separately for each of several years after 12th-grade.
You can see that nothing interesting happens around the cutoff. The authors’ statistical analysis suggests that there may actually be a gain of a few percent, but the gain is small.
Apparently, the sheepskin itself isn’t all that valuable. That suggests that it’s what the student brings out of school that counts.