Estimating the Labor Market Signaling Value of the GED

Dec 18, 2022

Abstract: This paper tests the labor market signaling hypothesis for the General Educational Development (GED) equivalency credential. Using a unique data set containing GED test scores and Social Security Administration (SSA) earnings data, we exploit variation in GED status generated by differential state GED passing standards to identify the signaling value of the GED, net of human capital effects. Our results indicate that the GED signal increases the earnings of young white dropouts by 10 to 19 percent. We find no statistically significant effects for minority dropouts.

Date: 2000-05-01

URL: https://doi.org/10.1162/003355300554818

Volume: 115

Pages: 431-468

Publication: The Quarterly Journal of Economics

Issue: 2

Reading Notes:

Objective: To test the labor market signalling hypothesis using data on the GED and earnings

Importance: Able to form a credible test of the signalling hypothesis with the GED, which may be of the form that workers of lower quality may find it more costly to achieve a passing score

Background: Different states have different passing scores. In some states 3 is a passing score. Others require a 4 or 5.

Data & Key Variables: Administrative records from the GED testing service, for GEDs taken in 1990

Taxable earnings from Social Security Administration in 1995

Methodology: Use variation in interstate GED passing standards to compare similar individuals with and without a GED. Difference in differences on score & standards

Three groups:

Score 1 & 2: Do not receive GED anywhere

Score 3 & 4 - Affected group - GED receipt depends on where you live

Score 5-10 - Receive GED anywhere

Results: For young white dropouts the signalling value increases wages by 10-19 percent ($1500)

No significant effect for non-white dropouts (possibly GED signals something different for this group)

Key Table/Figure:

Dani’s Reading Notes

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