Beyond Traditional Academic Degrees

The Labor Market Returns to Occupational Credentials

by Matthew D. Baird, Robert Bozick, Melanie A. Zaber

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Occupational credentials provide an additional and at times alternative path to formal education for individuals to demonstrate to employers and consumers their ability and qualifications. These take the form of licenses and certifications. However, the literature on the returns to credentials is inadequate, with prior research having limited causal identification relying on OLS regressions which do not sufficiently control for selection. Using new modules in the 2015 and 2016 Current Population Surveys, we construct an instrumental variable of peer groups using the within-state credential rate of individuals sharing the same sociodemographic characteristics. We employ a marginal treatment effects estimator based on a generalized Roy model, and estimate the effect of credentials on labor market outcomes. Given the large difference in what form these credentials take depending on the education level, we do all analysis separately for sub-baccalaureate and bachelor's and more populations. We find large, meaningful returns both for entry into the labor force, employment, and for log wages. The effect of having a credential on log wages is higher for those in the sub-baccalaureate labor market, suggesting the potential role of occupational credentials as an alternative path to marketable human capital and signal of skills in the absence of a bachelor's degree. We estimate the total effect on hourly wages and find that the average treatment effect is between the downward biased OLS and large local effect of 2SLS.

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