Grade Inflation, Social Background, and Labour Market Matching

36 Pages Posted: 19 Sep 2008

See all articles by Robert Schwager

Robert Schwager

Center for European Economic Research (ZEW); University of Magdeburg

Date Written: 2008


A model is presented where workers of differing abilities and from different social backgrounds are assigned to jobs based on grades received at school. It is examined how this matching is affected if good grades are granted to some low ability students. Such grade inflation is shown to reduce the aggregate wage of the lower class workers because employers use social origin as a signal for productivity if grades are less than fully informative. Moreover, the high-ability students from the higher class may benefit from grade inflation since this shields them from the competition on the part of able students from the lower classes.

Keywords: education, grading, standards, assignment, social mobility

JEL Classification: I21, J24, C78

Suggested Citation

Schwager, Robert, Grade Inflation, Social Background, and Labour Market Matching (2008). ZEW - Centre for European Economic Research Discussion Paper No. 08-070, Available at SSRN: or

Robert Schwager (Contact Author)

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
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University of Magdeburg

Universitätspl. 2
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Magdeburg, D-39106

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