The Signaling Effect of College Quality to Employers

abstract: Upon hiring a new college graduate, employers are left with limited information about the true productivity of the individual, mainly based on the information provided via resume and other related documents. Based on the information, which may include (and is not limited to) education years, grade point average(s), the institution one attended, majors, etc., employers attempt to differentiate between the candidates. Existing employer learning literature, such as Altonji and Pierret (2001) and Peter Arcidiacono, Patrick Bayer, and Aurel Hizmo (2010), have found that employers statistically discriminate upon hiring and estimate wages based on expected productivity conditional to observable characteristics--specifically education. As one's work experience accumulates, the wages are adjusted to the newly learned characteristics correlated with productivity. Thus, college graduates are more appealing as job candidates than high school graduates, with little learning done with experience in the labor market as employers have a more accurate depiction on productivity with more education years. With rising demands for high-skilled labor, there is a growing interest on what employers learn about from the name of the college listed on one's resume, as varying ability students sort into varying quality colleges. I include a one-dimensional index of college quality, as similarly constructed by Eleanor Dillon and Jeffrey Smith (2015), to measure the effects of attending a highly-selective institution in predicting individual ability. This paper provides additional support for the employer learning model on college graduates, with an emphasis on the direct role that college quality has at the start of one's career. Although college quality appears to be influential in providing employers additional information on one's productivity, unlike education, the weight placed on it by employers does not change with experience in the labor market. I further investigate within the college market and provide possible explanations behind learning on the basis of college quality, including: the possibility of information explained by quality unrelated to one's ability and the effects of attending a highly selective college