Grades, Academic Performance, and Labor Market Outcomes
Abstract
Grades open doors to scholarships, graduate programs, and jobs, but distinguishing the effect of grades from the underlying ability they measure is hard. We study this question by implementing a Regression Discontinuity Design around grade-jump cutoffs at Uruguay’s main higher education institution, where a deterministic rule converts continuous course scores into coarser transcript grades. Marginally earning a higher first-semester grade raises next-semester GPA by 0.23 standard deviations. Because students observe both the score and the grade, the response reflects the transcript label rather than anything students learn about their own ability. In the labor market, monthly earnings at the first job show no detectable change. In contrast, hourly wages are 17 to 21 percent higher, while weekly hours worked are 2.2 to 2.8 hours lower. The wage premium fades quickly, but the hours reduction persists. These findings seem to be driven by within-sector changes, rather than students sorting across sectors with systematically different jobs. A higher grade also raises public-sector entry by 7 percentage points, where hiring rules score GPA explicitly. Finally, among students who start working after the grade is realized, we find evidence that academic performance improves in the semesters after the first job begins, relative to students who marginally earned a lower grade, which is consistent with them working fewer hours.