Signaling on the Labor Market : Evidence from College Scorecards

Individuals often select which university they will attend based on the institution's reputation. They do so to signal to employers their abilities, which may affect their hireability and wages. We study these signaling effects by exploiting a change in Ecuador's governmental university ranking system that lowered employers' perceptions of the average quality of graduates of seven of Ecuador's 11 highest-ranked universities. Using proprietary data matching college graduation, employment, wages, and graduate degrees, we show that the effect of the ranking change matches all the theoretical predictions of the effect of the signal of graduating from a particular university. The ranking change decreased salaried employment and wages for inexperienced individuals who had newly entered the labor market and whose universities decreased in ranking. This effect fades over time as individuals reveal their productivity. These effects are driven by employers more likely to rely on signaling to infer employee productivity