College Licensing and Reputation Effects on the Labor Market

Co-Authors:

José Flor-Toro

Matteo Magnaricotte

Draft coming soon

Abstract: We study the effects of an increase in college quality information on graduates’ labor market outcomes. In 2015, Peru introduced a higher education reform that regulated universities’ compliance with a set of basic quality standards and awarded or denied operating licenses based on it. Universities received the licensing decisions in the period 2016-2021, resulting in 50 closures out of 144 institutions. We use administrative labor market data and a difference-in-differences approach that takes advantage of the staggered nature of licensing decisions. Graduates from licensed colleges experienced positive effects: an increase in wages equivalent to USD 25 per month on average in the first year after the announcement, as well as an increase in employment rates and a reduction in job tenure. These effects are also heterogeneous, depending on job tenure at the time of treatment. Wages increased for short-tenured workers, as well as employment rates. Workers with longer tenure become more likely to switch jobs. The results are consistent with a model where information asymmetries are reduced over time for the current employer only. Evidence on the denial of licenses is mixed but does not support strong negative effects on short-term labor market outcomes of graduates from unlicensed colleges.

Slides are available when requested.