Grades and Employer Learning

We identify the labor market returns to university grade point averages (GPA) by leveraging a nationwide change in the scaling of grades in Danish universities. Our results show that a reform-induced increase in GPA that is unrelated to ability causes higher earnings immediately after graduation, but the effect fades in subsequent years. The effect at labor market entry is largest for individuals with fewer alternative signals. Although employers initially screen candidates based on skill signals, our findings are consistent with a model in which employers rapidly learn about worker productivity.