Estimating the Labor Market Signaling Value of the GED

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While many previous studies have examined the economic impact of the GED on labor market outcomes, the results from these studies are all based on regression analyses that employ questionable comparison groups. As a result, all previous studies of the economic impact of the GED likely suffer from “selectivity bias.” Most of these past studies have found small or no effects of the GED on the labor market outcomes of dropouts.

Using updated and powerful data and a methodology that relies on interstate variation in GED passing standards to address selectivity bias issues, we find that the GED has a large impact on the earnings of young white dropouts who chose to obtain the credential and whose scores place them on the margin of passing. Our estimates are robust across several different “natural experiments” we can employ, as well as to a series of specification checks. While we find no statistically discernible effect of the GED on the earnings of young minority dropouts, this does not rule out a positive impact of the GED on higher scoring minority dropouts nor a positive impact on the earnings of minorities via a human capital route.

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