Educational Returns, Ability Composition and Cohort Effects: Theory and Evidence for Cohorts of Early-Career UK Graduates
Paper No' CEPDP0939:
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Keywords: Educational Returns; College Wage Premium, Degree Class, Ability Bias,
JEL Classification: J31; J24; I21; D82
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This Paper is published under the following series:
CEP Discussion Papers
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An increase over time in the proportion of young people obtaining a degree is likely to impact
on the relative ability compositions (i) of graduates and non-graduates and (ii) across
graduates with different classes of degree award. In a signalling framework, we examine the
implications of this on biases across cohorts in estimates of educational returns. In an
empirical analysis, we exploit administrative data on whole populations of UK university
students for ten graduate cohorts to investigate the extent to which early labour market
outcomes vary with class of degree awarded. Consistent with our theoretical model, we find
that returns by degree class increased across cohorts during a period of substantial graduate
expansion. We also corroborate the empirical findings with evidence from complementary
data on graduate sample surveys.