GRADUATES FROM higher-ranked universities tend to earn more money. That is well known. What is less understood is why. One theory is that these schools are better at imparting knowledge—employers might reasonably offer higher salaries to new hires they believe are better qualified. An alternative theory is that admission is a form of signalling. Prestigious colleges are selective. Their students may not learn anything particularly useful, but are paid more because simply getting accepted to a leading college gives employers the impression that they are talented.
A new paper by Sheetal Sekhri of the University of Virginia adds further evidence for the latter theory by looking at the wages of university graduates in India. There, pupils in their final year of secondary school sit a leaving exam known as the Senior Secondary School Examination. Those who score well enough are eligible for admission to India’s well-regarded public colleges; those who fall short enrol at less-prestigious private colleges. India is atypical in that its college students have to take standardised exit exams. These tests give researchers a good opportunity to see whether highly ranked universities do a better job of educating their students than average ones.