Grade Inflation: It Depends How You Define ‘Educational Quality’

On VoxEU, we have Raphael Boleslavsky and Christopher Cotton’s, “The unrecognized benefits of grade inflation.” The authors write:

Our analysis reveals a surprising link between grade inflation and investment in education quality – schools invest more when they are allowed to inflate grades than when grade inflation is banned. …

With grade inflation, student transcripts convey less information, and therefore the employer relies less on transcripts and more on school reputation when evaluating graduates. In this way, grade inflation increases the incentives that schools have to undertake costly investments to improve quality of education, and the average ability of their graduates. To the extent that school investments and a student’s own study efforts are strategic complements in human capital development, students who anticipate greater investments by schools in turn have greater incentives to increase their own efforts. [Emphasis LSTB]

You could replace the emphasized bits about “education quality” with “wasteful spending” or the like and you’d have an accurate description of what goes on at law schools.

For instance, we have expanding faculties:

Law School Faculty Per School (Calendar-Year Average, Index 1999=100, Excl. P.R.)

(Source: Official Guide, author’s calculations)

We have lots of internal grants and scholarships:

Spending on Internal Grants and Scholarships Per Law School (2013 $)

(Source: ABA (pdf), Bureau of Labor Statistics, author’s calculations)

We have no (net) positive impact on job outcomes:

Percent Employed by Status (NALP)

(Source: NALP)

We have a decline in legal sector labor productivity:

Legal Sector Labor Productivity (2005=100)

(Source: Bureau of Labor Statistics)

…And all this is covered with tuition hikes on the poor souls who are paying full tuition (if that):

Median Full-Time Law School Tuition (2013 $)

(Source: ABA (pdf), FinAid.org, Bureau of Labor Statistics, author’s calculations)

None of this is necessarily the result of grade inflation, which the authors’ model takes to be endogenous when I happen to think it’s exogenous (Hell, even the law school deans say so). If anything grade inflation is a symptom of the same pressures the schools are under to signal their degrees’ prestige to employers. But job outcomes is most of what this all comes down to. If there weren’t such a wide dispersion of jobs and salaries, then there’d be less motivation to engage in these kinds of wasteful behaviors. The free student loans are the accelerant.

However, there’s no reason to believe that, in the face of grade inflation, colleges and universities would improve their reputations by carefully investing in better student outcomes; rather, they would invest the bare minimum of what the employers want to see—not what actually makes the graduates more productive. That’s why the employers complain about how law students take frivolous courses but keep hiring from elite law schools nevertheless.

Revealed preferences, people. Revealed preferences.

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