Degrees Matter: New Evidence on Sheepskin Effects in the Returns to Education

Abstract

The effects of diploma receipt in the returns to education were examined. The sheepskin effects of the increase in wages due to receiving a degree were documented by various researchers. A unique data set with information on both years of education and diplomas received drawn from a matched sample of the 1991 and 1992 March Current Population Survey of the US Bureau of the Census was used to estimate the diploma effects. The sample comprised individuals whose race was Black or White and were 25-64 years old in 1992. The estimates of sheepskin effects of high school and college receipt based only on information on years of education suffered from substantial biases. However the diploma receipt was a much more important determinant of wages than found by previous research: completing a bachelors degree was worth more than the human capital acquired during 3 years of college. Minority men and women appeared to receive a higher return to completing 16 or more years of education than their White counterparts. Significant positive effects for a high school diploma were found only for White men. The wage returns to high school for Black men and for White women were smaller than those for White men. The marginal returns to receiving either an academic or an occupational associates degree were statistically significant for White women raising wages by 10-20%. Significant differences between Black and White women existed for both types of associates degrees. The marginal effects of receiving a bachelors degree were positive for all groups and statistically significant for all but Black men. Masters degrees delivered a very high return for Black men which was significantly different from that for White men and Black women. Professional and doctoral degrees yielded an increase in wages above those for bachelors degrees for White men and women.