Short- and Long-run Effects of Early Grades

This paper provides the first causal evidence on how early grades affects students' education choices, attainment, and labor market outcomes. I identify treatment effects exploiting the staggered implementation of a reform that postponed grade assignment in Swedish compulsory school. I examine effects by academic ability and socioeconomic status (SES), key determinants of grades. Low-ability students graded early on decrease effort in school and make choices more consistent with vocational paths; high-ability students exhibit instead the opposite behavior. When assigned early grades, low-ability students are more likely to complete vocational college; high ability students are more likely to graduate from high school, but less likely to complete college if high-SES. I observe positive effects in early labor market outcomes for the disadvantaged, and negative effects for high-SES students. In the long-run these effects do not persist, but income mobility increases favoring disadvantaged students. The main motivation of the reform was that early grades could demotivate the disadvantaged. While this appears to be the case, these students are the ones who benefit the most from the early grading policy