Damon Clark

This paper distinguishes between the human capital and signaling theories by estimating the earnings return to a high school diploma. Unlike most indicators of education (e.g., a year of school), a diploma is essentially a piece of paper hence by itself cannot affect productivity. Any earnings return to holding a diploma must therefore reflect the diploma’s signaling value. Using regression discontinuity methods to compare the earnings of workers that barely passed and barely failed high school exit exams - standardized tests that students must pass to earn a high school diploma - we find little evidence of diploma signaling effects.