Mark Palko at the excellent blog Observational Epidemiology has a post arguing that the appeal of Ivy League degrees is primarily peer effects and selection. It’s popular these days to sneer at the Ivys. For instance, this WSJ article argues that State schools have an edge in business recruitment.
Still, it’s worth looking at the data. I’ll follow Robin Hanson’s idea that the best place to find an estimate of “X” is to find a paper that looks for “Y”, but controls for X.
There was a study that got a lot of press recently looking at the impact of kindergarden teachers on future economic outcomes. The focus was on how different classroom treatments left long-run impacts, but the slides of the paper also had this interesting result (not found in the actual paper itself):
Clearly, going to a top-ranked school seems to deliver far higher earnings at age 28 than poorer ranked schools. In fact, the relationship is highly non-linear. Contrary to what you may have heard (“All top-ranked schools are the same”); it in fact looks like the difference between top-ranked Harvard and 9th ranked Dartmouth is on the order of ~$4,000 a year (perhaps $100,000-$200,000 over the course of a lifetime?). That difference grows to something like $18,000 over 25th ranked UCLA, per year. However, when one gets down to the 75th ranked school; school rank doesn’t much matter anymore. You’re pulling in ~$43k regardless. In fact, these are likely under-estimates of the value of going to a top school. Many elite graduates are still in graduate studies by age 28, and earnings tend to increase as people hit prime working years.
The pure monetary benefits of going to a top-ranked school (including peer and selection effects) are very substantial; and these benefits rise proportionately with the rank of the school. The marginal benefit of getting into the next highest ranked school is actually higher the higher the rank of your current school. In other words, Yale grads should really really want to go to Harvard. A very rough calculation suggests that everyone who turns down a top-ranked school for a safety to avoid student loans is making a big mistake (though, this is the same type of rough calculation people make when they conclude that there is a high College premium in general).
(Also check out the earnings of those from schools ranked 75 and lower. High school graduates can make perhaps ~$30k a year. So those guys just gave up ~$120k in earnings, plus paying College tuition, for the privilege of making ~$44k by age 28. How big is that College premium again?)
Of course, the large effects of going to a top-ranked school could be coming purely from those peer and selection effects. Another paper, by Krueger and Dale, tackles these issues. They have data on people accepted to both selective and non-selective schools. By tracing the incomes of people who were accepted at both Harvard and Mass U, but choose Harvard against those were accepted at both but choose Mass U; they are able to better parcel out what going to Harvard has on your earnings, as opposed to just being the type of person who can get into Harvard.
If you check out their working paper (these results do not appear in subsequent versions of the paper and media reports), they find that the “Selectivity” of the College you finally go to as judged by Barrons matters a great deal in explaining the variance of future income, though the average SAT of the school does not.
One simple interpretation is that peer and selection effects don’t matter as much as you think. Just being the type of person who can get to Harvard isn’t enough; you need to actually go to Harvard to get the bonus. And having lots of high-SAT score friends at College doesn’t seem to help (though, interestingly, the Kindergarden study above did find evidence of peer effects. Your kindergarden pals matter but your College roommate doesn’t for your future earnings?).
Rather — it’s selectivity that delivers the extra premium, consistent with the findings above. Something about actually going to an Ivy League school — the connections, the signal — imparts the sizable bonus. Potentially, they could even be learning more, but I think we all know that’s not true.
I don’t want to push on this too much. Obviously, the type of person accepted to both Harvard and Mass U, but goes to Harvard, is going to be different from the person who chose Mass U in the same situation. And SAT scores don’t constitute the full universe of peer effects. Arguably, going to a highly selective school where everyone was able to pass through a very tough selection process produces a peer effect stronger than simply going to a school of lazy smart people.
But certainly I think this research points to strong and durable rents being earned by graduates of elite Universities. I think that makes Admissions processes that focus so strongly on legacy identity so pernicious. If Dan Ariely is really concerned about inequality, perhaps he should complain more about his University’s (Harvard) Admissions processes.
There is perhaps no force There are few forces in the country so strongly promotive of inter-generational wealth accumulation as College Admissions practices, particularly at the top end of the wealth distribution, yet they remain very under-discussed whenever these topics come up.