-RXUQDORI3XEOLF(FRQRPLFV  ²

Contents lists available at ScienceDirect

Journal of Public Economics

journal homepage: www.elsevier.com/locate/jpube

The effect of human capital on earnings: Evidence from a reform at 7

Colombia's top university☆
Carolina Arteaga
Department of Economics, UCLA, United States

A R T I C L E I N F O A B S T R A C T

JEL classifications: In this paper I test whether the return to college education is the result of human capital accumulation or instead
I23 reflects the fact that attending college signals higher ability to employers. I exploit a reform at Universidad de
I25 Los Andes, which in 2006 reduced the amount of coursework required to earn degrees in economics and business
I26 by 20% and 14%, respectively, but did not change the quality of incoming or graduating students. The size of the
J24
entering class, their average high school exit exam scores, and graduation rates were not affected by the reform,
J31
indicating that selection of students into the degrees remained the same. Using administrative data on wages and
Keywords: college attendance, I estimate that wages fell by approximately 16% in economics and 13% in business. These
Education
results suggest that human capital plays an important role in the determination of wages and reject a pure
Human capital
signaling model. Surveying employers, I find that the reduction in wages may have resulted from a decline in
Signaling
performance during the recruitment process, which led students to be placed in lower-quality firms. Using data
from the recruitment process for economists at the Central Bank of Colombia, I find that the reform reduced the
probability of Los Andes graduates' being hired by 17 percentage points.

1. Introduction schooling and are paid more, which explains the difficulty in setting the
two theories apart.
Education is one of the most important determinants of wages at the In this paper, I identify the effect of human capital accumulation on
individual level. Returns to a year of schooling are estimated to be wages, separate from that of signaling, by exploiting a curriculum
positive and large in most countries, ranging from 2% to 20% around change at Universidad de Los Andes, the top university in Colombia. In
the world (Montenegro and Patrinos, 2014). Moreover, the earnings 2006, the number of credits required to earn a college degree in eco-
premium associated with college has risen substantially in the last nomics and business decreased by 20% and 14%, respectively. This was
decades (Oreopoulos and Petronijevic, 2013). There is less consensus accomplished by dropping 12 required courses in economics and 6 in
about the mechanisms through which education leads to higher wages. business, and a reduction in instruction time from 4.5 to 4 years.2 The
Studies that estimate causal returns to schooling cannot shed light on identification strategy of this paper relies on the fact that the reform did
the sources of such returns (Card, 1999). Two main channels have been not alter the selection of entering or graduating students. At Los Andes,
proposed in the literature. First, the human capital theory argues that the admission process is constrained by a limited number of slots and is
education increases productivity and wages rise as a result (Becker, solely based on scores on the national standardized high school exit
1962 and Mincer, 1974). Second, the signaling theory posits that higher exam (the Saber 11). I show that the size of the entering class did not
wages reflect the correlation between education and unobserved grow, nor did average entrance test scores decrease, and dropout rates
ability.1 In both settings, higher-ability workers obtain higher levels of did not change with the reduction in the number of classes. Therefore,

☆
I am grateful to the Colombian Ministry of Education, the Central Bank of Colombia, and the Economics Department at Universidad de Los Andes for providing the data for this study.
I would like to thank Magne Mogstad and two anonymous referees for their excellent comments. I am extremely grateful to Adriana Lleras-Muney for her encouragement and suggestions.
I also want to thank David Atkin, Leah Boustan, Moshe Buchinsky, Michela Giorcelli, Carlos Medina, Maurizio Mazzocco, Rodrigo Pinto, Sarah Reber, Juan E. Saavedra, Andres Santos,
and Till von Wachter for their comments and feedback. I am grateful to my colleagues Pasha Andreyanov, Tiago Caruso, Richard Domurat, Keyoung Lee, Rustin Partow, and Maria Lucia
Yanguas for insightful suggestions and discussions. I thank seminar participants at UCLA, SOLE, LACEA, EBE, Universidad de Los Andes and the Central Bank of Colombia for valuable
comments.
E-mail address: caroartc@ucla.edu.
1
Of course, the two theories are not mutually exclusive.
2
In economics, the change in curriculum not only reduced the number of semesters, but also the number of courses per semester. Before the reform, students were expected to take six
courses per term; this was changed to five. In business, the number of classes per term remained at five.

https://doi.org/10.1016/j.jpubeco.2017.10.007
Received 14 November 2016; Received in revised form 2 October 2017; Accepted 29 October 2017
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C. Arteaga -RXUQDORI3XEOLF(FRQRPLFV  ²

the reform had no short-run effect on the quality of the entering class employers use to learn about workers' expected productivity.
after 2006, but it decreased human capital accumulation. The human A number of papers have investigated this issue in primary and
capital model predicts a decline in wages as a result of the reform, secondary education settings and obtained mixed results. Eble and Hu
whereas a pure signaling model does not. (2016) exploit the introduction of one extra year in primary school in
To estimate the effect of the reform, I use individual information on China in 1980 and find a 2% increase in wages. Since this accounts for a
wages and educational attainment in a difference-in-differences (DID) small fraction of the overall return to schooling, they conclude that
framework. I compare wages in the formal sector before and after the there is an important role for signaling in primary education, however,
reform for economics and business graduates of Los Andes and other no extra coursework was introduced in that additional year. Lang and
top-10 schools in Colombia that did not reform their degrees. I find that Kropp (1986) and Bedard (2001) find secondary schooling decisions
after the reform, wages for students from Los Andes decreased by 16% that are consistent with a signaling model and would reject a pure
in economics and 13% in business. This suggests that human capital human capital framework. Another strand of the literature attempts to
accumulation plays an important role in the determination of wages, directly measure whether there is a signaling value to academic de-
and therefore I reject a model in which signaling is the only role of grees. Tyler et al. (2000) estimate the signaling value of the GED to be
college education. Allowing for heterogeneous effects of the reform between 12% and 20%, whereas Clark and Martorell (2014) find little
(using Athey and Imbens', 2006 changes-in-changes estimator), I find a evidence of high school diploma signaling effects.
homogenous impact along the wage distribution; this indicates that Finally, my results suggest that human capital accumulation is an
wages declined proportionally for high- and low-earners. important explanation for the returns to college education. This finding
I investigate the mechanisms that led to lower wages. Using data for relates to a growing literature that estimates the returns to different
economics graduates from Los Andes, I find that the distribution of types of post-secondary education by separating the effect of the in-
employers changed with the reform, and that the likelihood of being stitution versus the field of study. This literature suggests that what
employed by the highest-paying firms decreased. Moreover, I find that matters the most is the type of degree as opposed to the institution from
there is a relationship between the classes dropped and the placement which it was obtained (Dale and Krueger, 2002; Kirkebøen et al., 2016,
of graduates across employers. Using data from the recruitment process and Hastings et al., 2013). This paper contributes by providing evidence
for economists at the Central Bank from 2008 to 2014, I find that for that suggests that the source of heterogeneity in returns may be due to
graduates of Los Andes, the probability of being hired fell by 17 per- the different sets of skills and knowledge acquired in each degree, and
centage points after the reform. This suggests that the reduction in not to differences in selectivity.
courses introduced by the reform, decreased students' performance in The rest of the paper is structured as follows. Section 2 describes a
recruitment processes, which in turn placed them in lower-quality firms simplified version of a signaling and human capital model to derive
and ultimately decreased their wages. Given that initial firm placement testable implications in my context. Section 3 discusses the curriculum
plays a significant role in determining long-term labor market success reform at Los Andes, and Section 4 describes the data, empirical
(Oreopoulos et al., 2012), my results could also hint at possible longer- strategy, and results. In Section 5, I explore the mechanisms that ex-
term effects. These results, however, are not estimates of the internal plain my results. Section 6 presents robustness checks, and Section 7
rate of returns to investment in additional schooling, but simply the concludes.
effect on wages early in people's careers.
Finally, I examine possible threats to my identification strategy. 2. Theoretical framework
First, it could be that the curriculum reform changed the pool of ap-
plicants and entrants in dimensions that are not captured by the Saber In this section I lay out a simple model that allows me to derive a
11, but are relevant to the labor market. Specifically, given the decline test of the signaling and human capital theories by exploiting a curri-
in requirements for graduation, lower-ability individuals should be in- culum reduction at a top university, in a context of ability-based ad-
duced to enroll in these programs, which would lead to a decrease in missions and a binding number of slots.
the value of the signal and in wages. To address this concern, I estimate Individuals have ability θi distributed with continuous support.
an alternative specification, taking as the treatment group students at There are J schools that offer different levels of human capital accu-
Los Andes who were already enrolled at the time of the reform but mulation fj, where j indicates school ranking. The cost to attend school j
studied under the new curriculum. Results for this alternative treatment for individual i increases with the level of human capital and decreases
group are similar to the baseline specification. Second, my estimates with the level of ability, such that c(fj, θi) > c(fk, θi) for every i when
might capture a negative trend in the return to a degree from Los Andes.

(fj, θi) < c(fj, θm) when θi > θm. In addition, ∂f ∂θ < 0 , meaning that
j < k, that is, when j offers higher human capital than k, and c
To test whether this is the case, I perform two exercises: First, I replicate ∂2c (f , θ)
my baseline estimation using a placebo date for the reform, and second,
I test my specification using a major at Los Andes that did not undergo a the cost of attending harder schools increases less for higher-ability
curriculum reform. I do not find evidence of wage changes in either individuals.
case. My results are robust to several additional checks explained in the Suppose that productivity is a linear function of ability and human
robustness section. Lastly, to interpret the reduction in wages as the capital such that for a given set of beliefs regarding the assignment of
causal effect of human capital, the choices underlying labor force par- students to colleges, expected productivity takes the form in Eq. (1).
ticipation should be unaffected by the reform. To check that this is the wj = µ (E [θi | f j ], f j ) = α1 + α2 θj + α3 f j (1)

These beliefs are written E [θi | f j ] ≡ θj, where θj, is decreasing in j

case, I estimate the effect of the reform on the probability of being
employed in the formal sector. I find that for both economics and
business the effects are very close to zero and statistically insignificant. (i.e., firms believe that average ability is greater in higher-ranked col-
This paper contributes to the literature by estimating the effect of leges), and firms observe the level of instruction fj. In a separating
human capital accumulation on wages, separate from that of signaling, Perfect Bayesian Equilibrium, agents signal their type, and firms predict
in a college setting. To the best of my knowledge, this is also the first ability based on the observed level of human capital and offer wages
paper to investigate the mechanisms that led to changes in wages; as a accordingly. Students choose the school j that maximizes wages net of
result, the study provides important information about the tools effort costs:


C. Arteaga -RXUQDORI3XEOLF(FRQRPLFV  ²

wj − c (f j , θi ) = µ (E [θi | f j ], f j ) − c (f j , θi ) (2) departments, the change led to the complete overhaul of curricula. In
economics, the curriculum was trimmed by 12 courses (20% of the total
Thus, a student chooses to attend the top school whenever:
w1 − w2 ≥ c (f1, θi ) − c (f2 , θi )
number of credits), which resulted in a median number of five courses
(3) per term instead of six. Specifically, the reform: (i) took six mandatory
courses and change them to optional courses (Monetary Policy, Public
The left-hand side of Eq. (3) is a positive constant, whereas the
Finance, Trade, Marxist Economics, Colombian Economic Policy, and
right-hand side is decreasing in θi. Then, there exists a unique θ1 such
Social Programs Evaluation); (ii) reduced the number of optional
that ∀ θ ≥ θ1 (3) will hold (see Appendix 1 for the proof and a simple
courses by four; (iii) combined two probability and statistics courses
example). Subsequently, there is a threshold θ for each pair of schools
into one; and (iv) combined accounting and economic measurement
that determines school choice over the school's ranking.
courses into one. The business department eliminated Computer Pro-
In this framework, the question of signaling vs. human capital
gramming, Simulations, and Microeconomics I. In addition, the re-
comes down to learning about the values of α2 θ and α3f in Eq. (1). To
quirement of six upper-division electives was reduced to three. For both
identify the contribution of human capital to wages, we need variation
majors, instruction time was reduced from 4.5 years to 4 years.
in f that holds θ constant. If school No.1 reduces the quantity of human
The reform affected new students and students who, at the time it
capital produced, (∆ f1 < 0), such that it is still higher than f2, this
was implemented, were beginning their second year or earlier for
model would predict that since the effort required to attend school No.1
economics, and in their third year or earlier for business. Other enrolled
went down, the level of ability that determines for whom it is profitable
students were not affected by the change.
to attend the best school would also decrease, and thus θ1 would de-
crease, and the fall in wages will confound the effects of the decline in

∆w1 = α2 ∆θ1 + α3 ∆f1. Note, however, that in an environment in which

the average ability of students and the decline in learning: 3.2. First stage: empirical evidence of the reform for economics and business

school No.1: To separately estimate the effects of human capital from that of
signaling, I need an effective decline in the number of terms studied and
i) Is constrained to admit a certain maximum number of students. credits earned, with no changes in the quantity or quality of the pool of
ii) Uses a proxy of ability to determine admissions. students graduating from Los Andes. To investigate these points, in this
iii) The maximum number of students is binding before the curriculum section I present data on aggregate statistics from Los Andes' annual
change. bulletins and micro data on credits earned by economics students.
Was the reform effective?
Then, by selecting students based on test scores the admissions Fig. 1 shows the average duration of undergraduate programs for
criteria guarantee that the quality of the admitted class will not be af- both economics and business majors. There is a step down in these
fected by the reform, because the school was already choosing a subset trends of about one semester at the time of the reform, which suggests
(i.e., those with highest ability) of the group of applicants who find it that the reform was effective in decreasing the average length of the
profitable to attend school No. 1, and thus: program. For economics, the average duration went from 5 to 4.5 years,

∆w1 = α3 ∆f1
and for business duration declined from 5.5 to 5 years. Fig. 2 shows the
(4)
number of credits students graduated with in economics. We can ob-
If α3 is zero, the data support a pure signaling model in which wages serve a sharp drop at the time of the reform of around 16%. Table 1
are solely determined by the school's average student ability; see Eq. shows regression estimates from fitting different linear trends around
(1). If α3 is statistically different from zero, this suggests a role for the reform.
human capital in the determination of wages. In the next section, I will Did the reform affect the size and composition of the entering and
review the assumptions that lead to this result. graduating classes?
To evaluate this question, I check the evolution of the size of the
3. Institutional background and reform entering classes, their average Saber 11 scores, and average graduation
rates. Panel a of Fig. 3 shows the evolution of the entering class in
I will first describe the salient characteristics of Colombian educa- economics and business. I fit different trends before and after the re-
tion and labor market institutions and details of the curriculum reform. form. The graph shows that the number of entering students was not
On the education front, college admissions occur twice a year. Students affected by the reform.4 Panel b of Fig. 3 shows the average Saber 11
apply directly to a major, and the gross enrollment rate in higher scores of the entering class. Fitted regressions around the reform do not
education is around 39%. Regarding the labor market, recent graduates suggest a change in the quality of the entering class. I also perform a
are typically recruited year-round, and only a few multinational com- DID estimation, similar to the one I perform for my baseline analysis, to
panies have a formal recruitment season. Recruitment at this level determine whether the reform reduced the average Saber 11 score.
usually consists of tests of specific knowledge, standard human re- Specifically, I compare Saber 11 scores for incoming cohorts before and
sources selection tests, and interviews. Twenty-five percent of college after the reform for Los Andes and other Top 10 schools. Table A2.1
graduates work in the informal sector. Los Andes is a private university, shows that there is no evidence of a reduction in scores after the reform
and is ranked first in Colombia. at Los Andes.
On the other hand, if the change in curricula alters the quantity of
3.1. Reform students graduating from Los Andes, the value of the signal would
change. This is plausible, since the requirements to graduate decreased
In 2006, Los Andes unilaterally decided to reduce the coursework with the reform. Panel c of Fig. 3 shows the evolution of graduation
required to earn a degree in most of its majors.3 The reasons given for rates and suggests that the reform had no effect on the dropout rate. I
the reform were to move toward international standards of shorter also perform a DID linear probability model regression to test whether
college degrees and to encourage graduate study. Each department was
autonomous in implementing the reform. In this paper, I exploit the
reforms implemented by the economics and business departments. 4
Even though I do not find a discontinuity in test scores, there is a change in trends
These consisted solely of a reduction in required credits; in other around the time of the reform. This could be problematic for my identification strategy if
the control group does not experience the same change in trend as Los Andes. To check for
this possibility, Figure A 1.2 shows Saber 11 scores for entering cohorts at Rosario
3
Los Andes was the only school to implement this practice at the time. University and reveals a similar pattern.


C. Arteaga -RXUQDORI3XEOLF(FRQRPLFV  ²

Fig. 1. Effect of the reform in degree duration.

Source: Annual statistical bulletin – Universidad de
Economics Business Los Andes. Scatter plots are mean degree duration
per cohort. A cohort is defined by the semester the
12

student started school. This graph includes all stu-

dents who started the program. Solid lines are the
fitted values of a linear regression on time, and
dashed lines represent 95% CI of the estimation.
The vertical line represents the time of the reform.
11

1110.5
Semesters

Semesters
10

10 9.5
9

9
8.5
8

1998 2000 2002 2004 2006 2008 1998 2000 2002 2004 2006 2008
Cohort Cohort

Colombia.5 The Colombian Ministry of Education released its first

rankings in 2015, in which it also ranked Los Andes first.6
Effective number of credits studied in economics
To summarize, the reduced curriculum translated into an effective
170

cut of one semester from the average degree duration for economics and
business and a reduction in the number of credits per term; this con-
stitutes an exogenous reduction in human capital. On the other hand,
160

the number of new students, Saber 11 scores, and dropout rates suggest
Number of credits

that the quantity and quality of students was unaffected, and therefore
150

the selectivity of the degrees remained unchanged after the reform. This
is an ideal environment to test the role of signaling and human capital
in college education.
140

4. Effects of the reform

130

In this section, I estimate the effect of the reduction of the curricula

120

on wages to test the prevalence of a pure signaling model versus a

2003 2004 2005 2006 2007 2008
Cohort model in which human capital matters. I start by describing my data,
continue with the identification strategy, and end with the results.
Fig. 2. Effect of the reform in credits studied.
Source: Department of Economics – Universidad de Los Andes. Scatter plots are credits 4.1. Data
studied by cohort. Solid lines are the fitted values of a linear regression on time and
dashed lines are the 95% CI of the estimation. The vertical line represents the time of the
reform. I use administrative data from the Ministry of Education. My main
database is the OLE (Observatorio Laboral de Educación), which is con-
structed to follow yearly earnings in the formal sector for college
the reform changed the probability of graduating with an economics or graduates in Colombia.7 This information is recorded from Social Se-
business degree, and do not find evidence that it did (Table A2.1). Fig. curity payments from 2008 to 2012. The OLE also contains education
A3.1 also shows that the reform did not change the share of students variables, such as university and program attended, graduation year,
who graduated with a minor. and personal characteristics.
In the model, students use school rankings to choose which college
to attend; if the reform decreased Los Andes' ranking, post-reform co- 5
https://www.timeshighereducation.com/world-university-rankings/2015/world-
horts would have, on average, lower ability. Even though the above ranking#!/page/0/length/25 http://www.topuniversities.com/university-rankings/
doesn't provide evidence of this, I examine this point directly by looking latin-american-university-rankings/2014#sorting=rank+region=+country=
at rankings and college exit exam scores. International rankings that +faculty=+stars=false+search=
Accessed February 10, 2016.
include Latin American universities are only available since 2013, but 6
http://www.mineducacion.gov.co/cvn/1665/w3-article-351855.html Accessed February
from 2013 to 2016, Los Andes has been ranked as the best school in 10, 2016.
7
75% of workers with a college education are employed in the formal sector
(Fedesarrollo, 2013).


C. Arteaga -RXUQDORI3XEOLF(FRQRPLFV  ²

Table 1
First stage – The effect of the reform on instruction and class quality.
Source: Annual bulletin−Universidad de los Andes & Department of economics.

Dep variable Degree duration No. of credits Class size HS test scores Graduation rates

Econ Buss Econ Econ Buss Econ Buss Econ Buss

(1) (2) (3) (4) (5) (6) (7) (8) (9)

⁎⁎ ⁎⁎⁎ ⁎⁎
Post − 1.038 − 0.916 − 24.37 8.56 −22.15 − 1.396 36.42 0.0192 0.00097
[0.367] [0.262] [6.751] [14.74] [32.20] [40.97] [71.51] [0.0635] [0.0496]
Trend pre 0.0943 − 0.0821 3.317⁎ 1.024 2.086 − 6.272 −1.655 − 0.0135 − 0.00503
[0.119] [0.0528] [1.637] [2.248] [4.124] [5.546] [7.913] [0.0110] [0.00606]
Trend post − 0.121⁎⁎⁎ − 0.0309 − 0.545 0.0952 −2.309 12.90⁎⁎⁎ 19.93⁎⁎⁎ 0.00692 0.0145⁎⁎
[0.0280] [0.0266] [1.637] [2.248] [1.899] [3.755] [3.801] [0.00596] [0.00606]
Constant 9.716⁎⁎⁎ 10.51⁎⁎⁎ 160.8⁎⁎⁎ 68.08⁎⁎⁎ 64.35⁎⁎⁎ 637.6⁎⁎⁎ 557.0⁎⁎⁎ 0.842⁎⁎⁎ 0.789⁎⁎⁎
[0.222] [0.181] [5.430] [9.403] [5.537] [21.28] [16.13] [0.0438] [0.0376]
Obs 18 18 10 16 16 21 21 20 20
R squared 0.868 0.881 0.867 0.233 0.171 0.45 0.672 0.163 0.427

Standard errors in brackets below the coefficients.

⁎
p < 0.1.
⁎⁎
p < 0.05.
⁎⁎⁎
p < 0.01.

Fig. 3. Effects of the reform on class se-

lection.
A: New students - Econ B: HS test scores - Econ C: Graduation rate - Econ
20 40 60 80 100 120 140

700

.9
.8
550

%
.7
400

.6

2002 2004 2006 2008 2010 2000 2002 2004 2006 2008 2010 2000 2002 2004 2006 2008 2010
Cohort Cohort Cohort

A: New students - Bus B: HS test scores - Bus C: Graduation rate - Bus

20 40 60 80 100 120 140

.9
700

.8
.7
550

%
.6
.5
400

.4

2002 2004 2006 2008 2010 2000 2002 2004 2006 2008 2010 2000 2002 2004 2006 2008 2010
Cohort Cohort Cohort

Source: Universidad de los Andes. The solid lines are the fitted values and dashed lines the 95% CI.

SPADIES is a database that tracks college dropout rates. Like the Andes and other top-10 schools, and who enrolled in economics or
OLE, it contains data on university attended but also has information on business. Table 2 shows summary statistics of some relevant variables
the first semester of college, which I needed to identify each student's in the data. The average individual in my sample is 26 years old and has
curriculum. This database also contains household socioeconomic been working for almost three years.9 On average, Los Andes graduates
variables. The third database contains individual data on Saber 11 earn 45% more than graduates of the next 10 schools in the national
scores. rankings (“Top 10” hereafter) and have higher Saber 11 scores; their
The three databases contain generated ID numbers to trace in- parents also have higher incomes.
dividuals.8 My baseline database contains all students who started
college between 2002 and 2007 and graduated after 2004 from Los

9
The fact that my data consist of wages from individuals at the beginning of their
8
Anonymized identifiers are generated using national identification numbers, name, professional careers poses a challenge to my specification, since wage profiles are very
and date of birth. steep in terms of experience.


C. Arteaga -RXUQDORI3XEOLF(FRQRPLFV  ²

Table 2
Summary statistics.
Source: Ministry of Education, Colombia.

Real wage Experience Age Female HS test Family incomea Obs

Andes economics 3,017,001 2.6 25.8 0.46 58.1 5.93 1736

1,776,674 1.9 2.2 0.50 5.5 1.44
Top 10 2,119,275 2.98 26.26 0.59 51.28 3.75 3580
1,457,070 1.98 2.83 0.49 6.01 1.76
Andes business 3,192,033 2.5 25.8 0.46 58.1 5.93 2659
1,959,143 1.8 2.2 0.50 5.5 1.44
Top 10 2,141,599 2.90 26.24 0.59 51.33 3.82 22505
1,522,623 2.01 2.79 0.49 6.03 1.76
Other majors at Los Andes 2,482,154 2.66 25.8 0.55 57.6 5.87 6069
1,695,091 1.99 2.2 0.50 5.4 1.53

Note: Top rows show means and bottom standard deviation. Data from all students who started college between 2002 and 2007, and graduated after 2004. The top 10 universities were
chosen using SABER PRO scores for schools of at least 1000 students.
a
Based on a classification over 9 categories of income.

the curriculum change, the premium immediately declined for eco-

nomics and gradually for business, for a final average reduction of 22
percentage points and 12 percentage points, respectively. Fig. A3.3
displays the wage densities for Los Andes and the Top 10 schools, both
before and after the reform. The graphs show that for the control group,
pre- and post-reform wage densities overlap each other, but for Los
Andes, post-reform densities shift to the left. Both Figs. 4 and A 2.3
show that the reform had a starkly negative effect on the wage dis-
tribution of Los Andes graduates. To estimate the magnitude of human
capital's role in wages, I estimate the following DID regression:

ln wageit = β0 + β1Andesi ∗Postt + β2 Andesi + β3 Postt

+ β4 experiencei , t + εit (5)

where wageit is the average monthly earnings of student i in year t, (in

2010 pesos). Andes is a dummy equal to 1 if student i went to college at
Los Andes, and 0 if he went to another Top 10 Colombian university
(my baseline control group). Post is a dummy equal to 1 if a student
started school after the date of the reform implementation and 0
Wages - Business otherwise, and experience is measured in years since graduation. The
coefficient β1 captures the effect of graduating from Los Andes after
2006 on wages. I also control for gender, year, and cohort effects in
14.1 14.2 14.3 14.4 14.5 14.6

other specifications.
Log real wages

4.3. Results

Table 3 shows my baseline results: Panel a presents estimates for

economics and panel b for business. The baseline estimation for Eq. (1),
reported in column 1, indicates a decline in wages by 16% for eco-
nomics and 13% for business. Column 2 adds controls for experience
squared and gender, and columns 3 through 6 add year and cohort
14

controls to these specifications. Throughout all such specifications,

2002 2004 2006 2008
Cohort there is a negative and strong decline in wages as a result of the reform.
Top 10 Andes These results reject a pure signaling model, in which wages should not
change; given the magnitude of the decline, they demonstrate an im-
portant role for human capital in the determination of wages.
Fig. 4. Pre trends and the effect of the reform on wages. While estimation is straightforward in this setting, statistical in-
Source: Ministry of Education. Scatter plots are mean wages per cohort and school group.
ference is not. Moulton (1990) shows that the failure to account for the
Lines are the fitted values of a regression quadratic on time. The vertical line represents
the time of the reform. presence of common group errors leads to insufficiently conservative
inference. In response to this concern, a clustering procedure emerged
whereby inference relies on the asymptotic approximations associated
4.2. Preliminary evidence and empirical strategy
with the assumption that the number of individuals within a group and/
or the number of groups grows large. However, this assumption does
Fig. 4 shows a scatter plot of wages for graduates from Los Andes
not apply in my setting. To address this concern, I follow Abadie et al.
and Top 10 schools for economics and business by cohort. Before the
(2010).10 Their inferential exercise examines whether the estimated
reform, the evolution in wages seems fairly parallel, and the slopes for
wages are statistically the same. There was a constant premium for
10
attending Los Andes of 36% for economics and 50% for business. With See also Imbens and Wooldridge (2009) and Cunningham and Shah (2017) for re-
cent applications of this method.


C. Arteaga -RXUQDORI3XEOLF(FRQRPLFV  ²

Table 3
Baseline results. Effect of the reform on wages.
Source: Ministry of Education OLE and SPADIES.

Dep var: Ln wage (1) (2) (3) (4) (5) (6)

Panel a: Economics

Post⁎Andes −0.163⁎⁎ − 0.161⁎⁎ − 0.167⁎⁎⁎ −0.164⁎⁎ −0.164⁎⁎ −0.161⁎⁎

[0.0500] [0.0501] [0.0505] [0.0505] [0.0501] [0.0501]
Post 0.0817⁎⁎ 0.0819⁎⁎ 0.0721⁎ 0.0744⁎ 0.0810⁎ 0.0865⁎
[0.0293] [0.0292] [0.0311] [0.0310] [0.0366] [0.0360]
Andes 0.312⁎⁎⁎ 0.301⁎⁎⁎ 0.312⁎⁎⁎ 0.300⁎⁎⁎ 0.311⁎⁎⁎ 0.300⁎⁎⁎
[0.0304] [0.0301] [0.0304] [0.0301] [0.0304] [0.0301]
Experience 0.135⁎⁎⁎ 0.154⁎⁎⁎ 0.137⁎⁎⁎ 0.154⁎⁎⁎ 0.135⁎⁎⁎ 0.156⁎⁎⁎
[0.00842] [0.0173] [0.00841] [0.0173] [0.0127] [0.0188]
Experience squared − 0.00424 −0.004 −0.00429
[0.00431] [0.00429] [0.00431]
Female − 0.0912⁎⁎⁎ −0.0908⁎⁎⁎ −0.0914⁎⁎⁎
[0.0223] [0.0223] [0.0224]
Constant 14.16⁎⁎⁎ 14.20⁎⁎⁎ 14.13⁎⁎⁎ 14.17⁎⁎⁎ 13.96⁎⁎⁎ 14.19⁎⁎⁎
[0.0197] [0.0238] [0.0495] [0.0511] [0.0846] [0.0383]
Cohort control N N Y Y N N
Year D N N N N Y Y
Clusters 11 11 11 11 11 11
Obs 3,621 3,621 3,621 3,621 3,621 3,621
R− sq 0.157 0.165 0.157 0.165 0.159 0.167

Panel b: Business

Post⁎Andes −0.136⁎⁎⁎ − 0.136⁎⁎⁎ − 0.141⁎⁎⁎ −0.141⁎⁎⁎ −0.135⁎⁎ −0.136⁎⁎

[0.0410] [0.0413] [0.0412] [0.0414] [0.0412] [0.0414]
Post 0.0952⁎⁎⁎ 0.0940⁎⁎⁎ 0.0555⁎⁎ 0.0558⁎⁎ 0.0971⁎⁎⁎ 0.0991⁎⁎⁎
[0.0153] [0.0152] [0.0185] [0.0185] [0.0189] [0.0188]
Andes 0.429⁎⁎⁎ 0.423⁎⁎⁎ 0.432⁎⁎⁎ 0.427⁎⁎⁎ 0.429⁎⁎⁎ 0.423⁎⁎⁎
[0.0312] [0.0316] [0.0312] [0.0316] [0.0312] [0.0315]
Experience 0.124⁎⁎⁎ 0.145⁎⁎⁎ 0.128⁎⁎⁎ 0.147⁎⁎⁎ 0.125⁎⁎⁎ 0.151⁎⁎⁎
[0.00517] [0.0115] [0.00512] [0.0115] [0.00782] [0.0120]
Experience squared − 0.00525 −0.00481 −0.00635⁎
[0.00303] [0.00303] [0.00302]
Female − 0.0976⁎⁎⁎ −0.0969⁎⁎⁎ −0.0979⁎⁎⁎
[0.0147] [0.0147] [0.0148]
Constant 14.06⁎⁎⁎ 14.11⁎⁎⁎ 13.96⁎⁎⁎ 14.00⁎⁎⁎ 14.15⁎⁎⁎ 14.10⁎⁎⁎
[0.0129] [0.0160] [0.0317] [0.0337] [0.0968] [0.0243]
Cohort control N N Y Y N N
Year D N N N N Y Y
Clusters 11 11 11 11 11 11
N 10,348 10,348 10,348 10,348 10,348 10,348
R− sq 0.122 0.130 0.124 0.132 0.122 0.131

Standard errors clustered at the individual level.

Control group: students from business at top 10 schools.
Cohort control: Semiannual GDP growth. Cohort refers to the semester and year the students started school. Year refers to the year of the wage observation.
Ln wage is the natural logarithm of the average monthly wage. Post is a dummy equal to one after the reform, Andes is a dummy equal to one if the student went to Los Andes. Experience
is measured in years.
Standard errors in brackets below the coefficients.
⁎
p < 0.1.
⁎⁎
p < 0.05.
⁎⁎⁎
p < 0.01.

effect of the actual intervention is large relative to the distribution of given that with time, employers learn about students' productivity on
the effects estimated for schools that are not affected by the reform. To the job (Farber and Gibbons, 1996; Altonji and Pierret, 2001 and Lange,
implement this procedure, I estimate Eq. (1) an additional 10 times, 2007). Specifically, consistent with my findings, Lange (2007) finds
replacing Los Andes with an indicator for one of the other 10 schools. that employers learn quickly; initial expectation errors decline by 50%
For all cases, the estimate for Los Andes was the largest (Table 4). I also within 3 years. Lange also estimates that signaling contributes < 25%
evaluate Eq. (1), changing the date of the reform, in addition to the to gains from schooling.
treated school. Fig. 5 and Supplementary Figs. S1 and S2 show the It is possible that the reform changed the pool of applicants and
distribution of treatment effects: In all specifications the effect I esti- entrants in dimensions not captured by the Saber 11 that are relevant to
mate is at the 5th percentile mark, or to the left. the labor market. Specifically, given the decline in requirements to
With the data available, I can only estimate the effect of the reform graduate, lower-ability individuals should be motivated to enroll in
on earnings early in students' careers. However, it is at this stage that these programs—thereby decreasing the value of the signal and, in turn,
the debate over signaling and human capital is particularly relevant, wages. To address this, I estimate an alternative specification in which


C. Arteaga -RXUQDORI3XEOLF(FRQRPLFV  ²

Table 4
Placebo coefficients.
Source: Ministry of Education OLE and SPADIES.

Diff in Diff (1) (2) (3) (4) (5) (6)

coefficient

Panel a: Economics

Andes −0.163 − 0.161 − 0.167 − 0.164 −0.164 −0.161

Placebo school 1 −0.145 − 0.145 − 0.150 − 0.148 −0.148 −0.146
Placebo school 2 −0.127 − 0.104 − 0.129 − 0.106 −0.123 −0.099
Placebo school 3 −0.041 − 0.053 − 0.045 − 0.045 −0.044 −0.057
Placebo school 4 −0.039 − 0.030 − 0.032 − 0.035 −0.037 −0.031
Placebo school 5 −0.026 − 0.024 − 0.022 − 0.021 −0.027 −0.025
Placebo school 6 0.080 0.071 0.081 0.074 0.078 0.070
Placebo school 7 0.081 0.073 0.087 0.077 0.085 0.075
Placebo school 8 0.106 0.104 0.109 0.107 0.108 0.103
Placebo school 9 0.113 0.105 0.118 0.109 0.111 0.106
Placebo school 10 0.197 0.220 0.200 0.222 0.206 0.230
Cohort control N N Y Y N N
Year D N N N N Y Y
Clusters 11 11 11 11 11 11
Obs 3,621 3,621 3,621 3,621 3,621 3,621

Panel b: Business

Andes −0.136 − 0.136 − 0.141 − 0.141 −0.135 −0.136

Placebo school 1 −0.085 − 0.083 − 0.088 − 0.087 −0.084 −0.082
Placebo school 2 −0.059 − 0.055 − 0.052 − 0.049 −0.058 −0.054
Placebo school 3 −0.045 − 0.045 − 0.044 − 0.043 −0.046 −0.045
Placebo school 4 −0.040 − 0.033 − 0.038 − 0.035 −0.039 −0.032
Placebo school 5 −0.032 − 0.033 − 0.034 − 0.032 −0.029 −0.032
Placebo school 6 −0.025 − 0.017 − 0.033 − 0.024 −0.020 −0.011
Placebo school 7 −0.008 0.001 0.000 0.008 −0.010 −0.001
Placebo school 8 0.017 0.006 0.025 0.014 0.025 0.015
Placebo school 9 0.072 0.075 0.077 0.079 0.074 0.077
Placebo school 10 0.104 0.100 0.113 0.108 0.107 0.103
Cohort control N N Y Y N N
Year D N N N N Y Y
Clusters 11 11 11 11 11 11
Obs 10,352 10,352 10,352 10,352 10,352 10,352

Controls: (1) experience. (2) Experience, experience squared and gender. (3) Experience and cohort controls. (4) Experience, experience squared, gender and cohort controls. (5)
Experience and year dummies. (6) Experience, experience squared, gender and year dummies.

the treatment group consists solely of Los Andes students who were return to college and an estimate of the return to Los Andes from
already enrolled at the time of the reform, but studied under the new Saavedra (2008), I find that the return to attending college at Los Andes
curricula. Table 5 and Supplementary Fig. S1 show results for this al- relative to not attending college is 110% (details of this calculation are
ternative treatment group. According to the data, there is a strong and explained in Appendix 2). This implies that the reform reduced the
negative effect on wages of around 16% for economics and 12% for premium by 14.5% and 11.8% as a result of a reduction in credits of
business. 20% and 14% in economics and business, respectively. However, in the
Given that the number of years of wage observations by group is absence of a causal estimate of the return to college for this setup, I
unbalanced (pre-reform vs. post-reform and treated vs. untreated), in cannot decompose this return.
Table 6 and Supplementary Fig. S2 I include observations with at most
three years of experience, to ensure that the treatment coefficient is not 5. Mechanism
capturing differences in the slope of the experience profile. Results in
Table 6 again suggest strong wage declines of the same magnitudes as When and how do employers find out about these graduates' lower
those found previously. human capital? Specifically, were they able to detect it in the recruit-
To make use of all data available, and recognizing the potential for ment process, during tests or interviews? Or did they notice it on the
heterogeneous effects, I now turn to a changes-in-changes (CIC) esti- job? Unfortunately, I do not have the information necessary to fully
mation following Athey and Imbens (2006) and Melly and Santangelo, answer these questions, but I do have data collected by the economics
2015 that extends the model to include covariates. I estimate CIC for department at Los Andes, on the employers of all economics graduates
the 10th through 90th percentiles after controlling for experience, by cohort, which I use to investigate whether employers changed with
gender, and cohort effects. As can be seen in Fig. 6, there is little evi- the reform. Table A3.3 lists the main employers before and after the
dence of heterogeneity in the reform's effect on wages by percentiles reform, and shows that there are important differences. There seems to
and fields, suggesting that the assumptions of the traditional DID esti- be a connection between the change in curriculum and the change in
mator hold. employers: The Central Bank, the Ministry of Finance, and the National
The decline in wages I find is large, and suggests sizable estimates of Planning Department are less likely to employ economists who grad-
the return to attending college at Los Andes. To better understand the uated under the new curriculum, under which the courses Monetary
magnitude of my estimates, I perform a back of the envelope calculation Policy, Public Finance, and Colombian Economic Policy were no longer
that attempts to quantify the reduction in the wage premium of at- mandatory. Indeed, Fig. A3.6 shows that there was a decline in the
tending college at Los Andes. Using a cross-section estimate of the number of students enrolled in these classes after the reform. From this


C. Arteaga -RXUQDORI3XEOLF(FRQRPLFV  ²

Econonomics
(1) (2) (3)

4
4

3
4
Density

Density

Density
3

2
2
2

1
1
0

0
-.2 0 .2 .4 -.2 -.1 0 .1 .2 .3 -.2 0 .2 .4
Estimated betas Estimated betas Estimated betas

(4) (5) (6)

6

5
4
4

4
Density

Density

Density
2 3
2

1
0

0
-.2 -.1 0 .1 .2 .3 -.2 0 .2 .4 -.2 -.1 0 .1 .2 .3
Estimated betas Estimated betas Estimated betas

Solid lines represent the 5th and 95th percentile. The dashed line represents my treatment effect.

Treatment effect distribution - Business

(1) (2) (3)
10

8
10
8

6
Density

Density
6

4
4

2
2
0

-.2 -.1 0 .1 .2 -.15 -.1 -.05 0 .05 .1 -.2 -.1 0 .1 .2

Estimated betas Estimated betas Estimated betas

(4) (5) (6)

8
8

10
6
6

Density

Density
4
4

5
2
2
0

-.2 -.1 0 .1 -.2 -.1 0 .1 .2 -.15 -.1 -.05 0 .05 .1

Estimated betas Estimated betas Estimated betas

Solid lines represent the 5th and 95th percentile. The dashed line represents my treatment effect.

Fig. 5. Treatment effect distribution (Table 3a and b).

comparison, I also find that the likelihood of being employed by the economics graduates, and as anecdotal evidence I learned that11: (i)
highest paying firms decreased with the reform. Using a ranking of the most knew about the reform from talking to recent graduates; (ii) they
100 highest paying firms for recent graduates in economics, I find that believe they can detect changes in human capital through tests they
the share of students in these firms fell from 24% to 14% after the
reform.
I interviewed employers to learn about their experiences with hiring 11
I conducted interviews with 11 out of the 14 employers listed on the left panel of
Table A2.3.


C. Arteaga -RXUQDORI3XEOLF(FRQRPLFV  ²

Table 5
Effect of the reform on wages. Alternative treatment group: students already in school by the time of the reform.
Source: Ministry of Education.

Dep var: Ln wage (1) (2) (3) (4) (5) (6)

Panel A: Economics
Post⁎Andes − 0.161⁎⁎⁎ − 0.159⁎⁎⁎ − 0.165⁎⁎⁎ − 0.161⁎⁎⁎ −0.161⁎⁎⁎ − 0.159⁎⁎⁎
[0.0534] [0.0536] [0.0538] [0.0540] [0.0537] [0.0539]
Post 0.0737⁎⁎ 0.0726⁎⁎ 0.0669⁎⁎ 0.0681⁎⁎ 0.0713⁎⁎ 0.0768⁎⁎
[0.0288] [0.0289] [0.0308] [0.0309] [0.0344] [0.0343]
Andes 0.312⁎⁎⁎ 0.300⁎⁎⁎ 0.312⁎⁎⁎ 0.300⁎⁎⁎ 0.311⁎⁎⁎ 0.298⁎⁎⁎
[0.0304] [0.0301] [0.0304] [0.0301] [0.0304] [0.0301]
Obs 3485 3485 3485 3485 3485 3485

Panel B: Business
Post⁎Andes − 0.118⁎⁎⁎ − 0.118⁎⁎⁎ − 0.124⁎⁎⁎ − 0.124⁎⁎⁎ −0.117⁎⁎⁎ − 0.118⁎⁎⁎
[0.0420] [0.0422] [0.0172] [0.0423] [0.0421] [0.0424]
Post 0.0925⁎⁎⁎ 0.0913⁎⁎⁎ 0.0525⁎⁎ 0.0527⁎⁎⁎ 0.0933⁎⁎⁎ 0.0955⁎⁎⁎
[0.0157] [0.0156] [0.0191] [0.0185] [0.0191] [0.0190]
Andes 0.429⁎⁎⁎ 0.424⁎⁎⁎ 0.433⁎⁎⁎ 0.427⁎⁎⁎ 0.430⁎⁎⁎ 0.424⁎⁎⁎
[0.0312] [0.0315] [0.0811] [0.0316] [0.0312] [0.0315]
Obs. 9979 9979 9979 9979 9979 9979

Standard errors clustered at the student level.

(1) Experience. (2) Experience, experience squared and gender. (3) Experience and cohort controls. (4) Experience, experience squared, gender and cohort controls. (5) Experience and
year dummies. (6) Experience, experience squared, gender and year dummies.
Cohort control: Semiannual GDP growth. Cohort refers to the semester and year the students started school. Year refers to the year of the wage observation.
Ln wage is the natural logarithm of the average monthly wage. Post is a dummy equal to one if a person studied with the new curriculum but was enrolled before the change, Andes is a
dummy equal to one if the student went to Los Andes. Experience is measured in years.
Standard errors in brackets below the coefficients.
⁎
p < 0.1.
⁎⁎
p < 0.05.
⁎⁎⁎
p < .01.

Table 6
Cap at three years of experience.
Source: Ministry of Education.

Dep var: Ln wage (1) (2) (3) (4) (5) (6)

Panel A: Economics
Post⁎Andes − 0.166⁎⁎⁎ − 0.164⁎⁎⁎ − 0.170⁎⁎⁎ − 0.167⁎⁎⁎ −0.166⁎⁎⁎ − 0.164⁎⁎⁎
[0.0484] [0.0486] [0.0487] [0.0488] [0.0485] [0.0487]
Post 0.0846⁎⁎⁎ 0.0835⁎⁎⁎ 0.0751⁎⁎ 0.0752⁎⁎ 0.0829⁎⁎ 0.0858⁎⁎
[0.0281] [0.0281] [0.0304] [0.0304] [0.0343] [0.0343]
Andes 0.314⁎⁎⁎ 0.305⁎⁎⁎ 0.313⁎⁎⁎ 0.304⁎⁎⁎ 0.313⁎⁎⁎ 0.304⁎⁎⁎
[0.0283] [0.0282] [0.0283] [0.0282] [0.0283] [0.0282]
Obs 3,314 3,314 3,314 3,314 3,314 3,314

Panel B: Business
Post⁎Andes − 0.129⁎⁎⁎ − 0.128⁎⁎⁎ − 0.134⁎⁎⁎ − 0.132⁎⁎⁎ −0.129⁎⁎⁎ − 0.128⁎⁎⁎
[0.0402] [0.0403] [0.0403] [0.0404] [0.0403] [0.0404]
Post 0.0953⁎⁎⁎ 0.0951⁎⁎⁎ 0.0600⁎⁎⁎ 0.0609⁎⁎⁎ 0.101⁎⁎⁎ 0.104⁎⁎⁎
[0.0152] [0.0151] [0.0184] [0.0183] [0.0187] [0.0187]
Andes 0.422⁎⁎⁎ 0.415⁎⁎⁎ 0.425⁎⁎⁎ 0.419⁎⁎⁎ 0.421⁎⁎⁎ 0.415⁎⁎⁎
[0.0300] [0.0302] [0.0300] [0.0302] [0.0300] [0.0303]
Obs 9,627 9,627 9,627 9,627 9,627 9,627

Standard errors clustered at the student level.

(1) Experience. (2) Experience, experience squared and gender. (3) Experience and cohort controls. (4) Experience, experience squared, gender and cohort controls. (5) Experience and
year dummies. (6) Experience, experience squared, gender and year dummies.
Cohort control: Semiannual GDP growth. Cohort refers to the semester and year the students started school. Year refers to the year of the wage observation.
Ln wage is the natural logarithm of the average monthly wage. Post is a dummy equal to one if a person studied with the new curriculum but was enrolled before the change, Andes is a
dummy equal to one if the student went to Los Andes. Experience is measured in years.
Standard errors in brackets below the coefficients.
⁎
p < 0.1.
⁎⁎
p < 0.05.
⁎⁎⁎
p < 0.01.

administered in the recruitment process; (iii) they argue that for some prospects beyond the recruitment process, because the professors in
jobs, the content made optional in the new curriculum is critical; (iv) those courses are helpful with job offers and job referrals; and (v) wages
they believe that taking fewer elective courses affects graduates' labor for new graduates are fixed. All of the above provides suggestive


C. Arteaga -RXUQDORI3XEOLF(FRQRPLFV  ²

school—or because they have less contact with professors who have
connections in the job market. It is clear that the first reason is entirely
due to a decrease in human capital, but this is not the case with the
second.
To evaluate whether the reform had an impact on students' ability to
obtain jobs, I perform a DID exercise with data from the recruitment
process for recently graduated economists at the Central Bank of
Colombia. This consists of a written exam, which tests specific knowl-
edge necessary for the position, as well as human resources tests and
interviews with both human resources staff and department heads.
Most such openings are publicly announced through employment
websites and social networks, and are open to any and all applicants. I
have data on university and enrollment terms for all candidates for
economist positions from 2008 to 2014, along with the final hiring
decision. For candidates who studied under the old curriculum, the
probability of being hired was 27%; this fell to 6% with the reform.
Table 7 shows the results of the DID exercise. According to data, after
the reform there is a reduction of 16.7 percentage points in the prob-
ability of being hired by the Central Bank for students from Los Andes
versus students from Top 10 schools. This suggests that one of the
possible mechanisms that led to the decline in wages is a decline in the
performance of students during the recruitment process. As a result, the
pool of offers a student could choose from was smaller, and students
started in lower-paying jobs.
The previous mechanism points to an environment in which em-
ployer learning happens rapidly due to the availability of tests on
specific content used in the recruitment process. Thus, one would ex-
pect that employers notice the reduction in instruction at Los Andes
soon after the first students enter the job market, which is what hap-
Fig. 6. Changes in changes estimates. pened in economics (Fig. 4). For business, however, if the recruitment
Source: Ministry of Education. CIC estimates of an estimation that controls for experience,
process relies less on testing specific knowledge, we would not expect to
gender, and cohort variables. Confidence intervals at the 95th percent level.
Test—Economics: Constant effect: QTE(x) = QTE(0.5) for all x; KS-statistic: 0.61; CMS-
see this pattern. Interviews with recruitment agencies suggest that this
statistic: 0.47. Test—Business: Constant effect: QTE(x) = QTE(0.5) for all x; KS-statistic: is the case, since a large share of the openings for recent graduates in
0.374; CMS-statistic: 0.276. business are also available to graduates from economics and en-
gineering, and thus tests on content are less appropriate. As a con-
sequence, the qualitative evidence suggests that it might take longer for
employers of business students to notice the differences in human ca-
pital of the new cohorts.
Table 7
Effect of the reform on the recruitment process.
6. Robustness checks
Source: Central Bank of Colombia.

Dependent variable: 1 if hired and 0 if not In this section I perform several robustness checks to address pos-
sible confounding factors in my estimation. I then discuss some im-
Andes⁎Post − 0.167⁎⁎
portant caveats and limitations.
(0.073)
Post − 0.049
It is possible that my estimates capture a negative trend in the return
(0.031) to a degree from Los Andes. To determine whether this is the case, I
Andes 0.163⁎⁎⁎ replicate my baseline estimation using a placebo date for the reform.
(0.058) Specifically, I include only cohorts that studied under the old curricula,
Constant 0.112⁎⁎⁎
and set a fake reform date in the middle of the period covered. If my
(0.023)
Obs 438 results were driven by a decline in the return to Los Andes, any
R squared 0.03 post*Andes interaction would be negative and statistically significant.
However, as shown in Table 8, all of the estimated effects are statisti-
Standard errors below the coefficients in parenthesis. cally equal to zero and smaller than 0.7% in economics, and positive for
Data from the recruitment process for economist positions from 2008 to
business.
2014.
⁎
p < 0.1. An alternative placebo check to address this concern is to test what
⁎⁎
p < 0.05. happens to law graduates (a major whose curriculum was not reformed)
⁎⁎⁎
p < 0.01. during the dates of the reform in economics and business. Results in
Table 9 show that there is no effect on wages for Los Andes law grad-
uates on the date of the reform in economics or business. All of the
evidence that under the new curricula, the pool of jobs a graduate can above suggest that the strong decline in wages I find is not the result of
obtain is smaller, either because they cannot succeed in the recruitment other trends or changes at Los Andes.
process—which includes tests on content they did not cover in Table 10 presents a series of additional robustness checks. The first


C. Arteaga -RXUQDORI3XEOLF(FRQRPLFV  ²

Table 8
Placebo test 1—Alternative date of the reform.
Source: Ministry of Education.

Dep var: Ln wage (1) (2) (3) (4) (5) (6)

Panel A: Economics
Fake post⁎Andes − 0.004 − 0.005 −0.007 − 0.007 − 0.002 − 0.003
[0.0481] [0.0482] [0.0488] [0.0490] [0.0482] [0.0486]
Fake post 0.012 0.002 −0.017 − 0.025 0.018 0.015
[0.0458] [0.0455] [0.0605] [0.0592] [0.0498] [0.0497]
Andes 0.313⁎⁎⁎ 0.300⁎⁎⁎ 0.315⁎⁎⁎ 0.301⁎⁎⁎ 0.309⁎⁎⁎ 0.294⁎⁎⁎
[0.0357] [0.0366] [0.0366] [0.0375] [0.0365] [0.0375]

Panel B: Business
Fake post⁎Andes 0.016 0.009 0.017 0.009 0.014 0.006
[0.0838] [0.0785] [0.0915] [0.0847] [0.0812] [0.0758]
Fake post 0.061 0.061 −0.057 − 0.054 0.080 0.082
[0.0772] [0.0747] [0.184] [0.177] [0.0821] [0.0782]
Andes 0.420⁎⁎⁎ 0.417⁎⁎⁎ 0.423⁎⁎⁎ 0.420⁎⁎⁎ 0.420⁎⁎⁎ 0.416⁎⁎⁎
[0.0640] [0.0593] [0.0681] [0.0618] [0.0612] [0.0567]

Standard errors clustered at the student level.

(1) Experience. (2) Experience, experience squared and gender. (3) Experience and cohort controls. (4) Experience, experience squared, gender and cohort controls. (5) Experience and
year dummies. (6) Experience, experience squared, gender and year dummies.
I take only the students that studied under the old curriculum and set the reform date on the middle of the period (2004−1 for econ and 2003−2 for business).
Standard errors in brackets below the coefficients.
⁎
p < 0.1.
⁎⁎
p < 0.05.
⁎⁎⁎
p < 0.01.

Table 9
Placebo test 2—Reform evaluated using data from law graduates.
Source: Ministry of Education.

Dep var: Ln wage (1) (2) (3) (4) (5) (6)

Date of economics reform

Post⁎Andes − 0.00952 − 0.00913 −0.00696 − 0.00657 −0.00282 − 0.00261
[0.0525] [0.0524] [0.0535] [0.0536] [0.0572] [0.0573]

Date of business reform

Post⁎Andes − 0.0238 − 0.023 −0.0224 − 0.0216 −0.0103 − 0.00964
[0.0341] [0.0342] [0.0347] [0.0348] [0.0379] [0.0380]
Obs 3388 3388 3388 3388 3388 3388
R−sq 0.12 0.12 0.12 0.12 0.13 0.13

St errors clustered at the school/cohort level.

(1) Experience. (2) Experience, experience squared and gender. (3) Experience and cohort controls. (4) Experience, experience squared, gender and cohort controls. (5) Experience and
year dummies. (6) Experience, experience squared, gender and year dummies.
Cohort control: Semiannual GDP growth. Cohort refers to the semester and year the students started school. Year refers to the year of the wage observation.
Ln wage is the natural logarithm of the average monthly wage. Post is a dummy equal to one if a person studied with the new curriculum but was enrolled before the change, Andes is a
dummy equal to one if the student went to Los Andes. Experience is measured in years.
Standard errors in brackets below the coefficients.
⁎
p < 0.1.
⁎⁎
p < 0.05.
⁎⁎⁎
p < 0.01.

two columns show results for economics and the last two for business; independent variable in my baseline estimation. The results in panel a of
columns 1 and 3 estimate Eq. 1 with cohort controls, and columns 2 and Table 10 suggest that there is a strong effect of the reform outside of age
4 add experience squared and gender. A possible explanation for these considerations. For economics, the effect is the same (−16%), and for
results is that there is an age penalty in the labor market. We can business it is smaller (−9%).
imagine that if two graduates have the same credentials, employers One might also be worried about the fact that the reform generated
might lean toward the older one, thinking that life experience is valu- two cohorts that graduated at the same time, which might have dis-
able for the job. In this case, having cohorts that graduate half a year torted wages by creating more competition. In panel b of Table 10, I
younger would result in lower wages, regardless of human capital or exclude these two cohorts and perform my baseline estimation; results
signaling considerations. To check this possibility, I include age as an show that the effects hold, even with the exclusion.


C. Arteaga -RXUQDORI3XEOLF(FRQRPLFV  ²

Table 10
Robustness checks.
Source: Ministry of Education.

Economics Economics Business Business

Dep variable: Ln wage (1) (2) (3) (4)

Panel a: Controlling for age

Treatment −0.162⁎⁎⁎ − 0.158⁎⁎⁎ − 0.0952⁎⁎ − 0.0950⁎⁎
[0.0510] [0.0510] [0.0410] [0.0412]

Panel b: Without cohorts that graduated at the same time

Treatment −0.159⁎⁎⁎ − 0.154⁎⁎⁎ − 0.118⁎⁎⁎ − 0.118⁎⁎⁎
[0.0552] [0.0552] [0.0437] [0.0439]

Panel c: Taking graduates from Top 3 schools as control (1)

Treatment −0.115⁎⁎ − 0.115⁎⁎ − 0.145⁎⁎⁎ − 0.145⁎⁎⁎
[0.0557] [0.0557] [0.0472] [0.0472]

Panel d: Including in the control group only students that could have attended Los Andes
Treatment −0.186⁎⁎⁎ − 0.184⁎⁎⁎ − 0.152⁎⁎ − 0.151⁎⁎
[0.0434] [0.0441] [0.0640] [0.0626]

Panel e: Without 2007 − 1 cohort

Treatment −0.152⁎⁎⁎ − 0.146⁎⁎⁎ − 0.117⁎⁎⁎ − 0.118⁎⁎⁎
[0.0510] [0.0511] [0.0418] [0.0420]

Panel f: Controlling for HS exit scores

Treatment −0.185⁎⁎⁎ − 0.180⁎⁎⁎ − 0.161⁎ − 0.160⁎⁎
[0.0469] [0.0472] [0.0624] [0.0611]

Experience Y Y Y Y
Experience squared N Y N Y
Gender N Y N Y
Cohort effects Y Y Y Y

Standard errors clustered by individual.

(1) Top 3 schools are Nacional, Javeriana and Rosario.
Standard errors in brackets below the coefficients.
⁎
p < 0.1.
⁎⁎
p < 0.05.
⁎⁎⁎
p < 0.01.

An additional concern about the previous estimates is the validity of match the pre-trend data of my treated groups. The comparison unit in
the control group. Even though the pre-trends in wages were similar, the synthetic control method is selected as the weighted average of all
the control group might not be a good counterfactual—if, for example, potential comparison units that best resembles the characteristics of the
the two groups face different labor markets, and these evolved in dif- case of interest. Table 11 shows the results of my baseline specification
ferent ways after the reform. To address this, I limit my control group to with respect to the optimally chosen control group. This group features
students graduating from the next three highest ranked schools, be- engineering, business, and law graduates of Top 10 schools. Using this
cause it is likely that students from these institutions will face the same method, results are similar to the ones found previously: The reform's
labor market as students from Los Andes. Panel c of Table 10 presents effect for economics graduates ranges from −7% to − 13%, and for
the results of the reform's effect on wages under this alternative control business graduates there is a larger dispersion, with the effect ranging
group; we can see that there is a negative effect of the reform on wages from −5% to − 20%.
of similar magnitude to the one found before. Finally, in the previous analysis I assumed that the reform did not
An alternative way to address the concern about the validity of the have an effect on labor force participation. To check that this is the
control group is to include only students who had the academic cre- case, I estimate the effect of the reform on the probability of being
dentials required to attend Los Andes in the control group. Specifically, employed in the formal sector. Table A3.3 shows the results of a DID
I include students who attended Top 10 schools and had Saber 11 scores regression on the probability of being employed. For both economics
greater than the minimum per cohort observed at Los Andes for eco- and business the effects is very close to zero and statistically insignif-
nomics and business. Panel d of Table 10 shows the results of this al- icant.12 In addition, since one of the motives for the reform was to in-
ternative exercise: Wages fall by a magnitude larger than in the baseline crease graduate school enrollment, it is important to check for changes
estimation (18% for economics and 15% for business). along this dimension. It is possible, for instance, that before the reform
Panel e of Table 10 repeats the baseline estimation, excluding cohort only students in the right tail of the ability distribution attended
2007–1; as shown in Fig. 4, this cohort had particularly low wages for graduate school, but after the reform more students enrolled, and
students from Los Andes. Again, the results are very similar, suggesting therefore the estimated difference in wages results from comparing
strong declines in wages. Finally, Panel f includes Saber 11 scores as a wages from different segments of the ability distribution. To determine
covariate. We can see that when controlling for test scores, the results whether this is the case, I use LinkedIn and personal and firm websites
hold and even increase slightly. to obtain information on graduate school enrollment for the last three
Since there are multiple possible choices for control groups, I follow cohorts that studied under the old curriculum and the first three that
Abadie and Gardeazabal (2003) and perform a synthetic control ex-
ercise in which I look for the best combination of major and school to
12
Saavedra (2008) finds a positive effect of attending Los Andes on employment (p.
22, Table 8). The first difference of the regression on Table A3.3 supports this finding.


C. Arteaga -RXUQDORI3XEOLF(FRQRPLFV  ²

Table 11 I use data and interviews from employers of economics graduates to

Synthetic control. study the mechanisms that led to the decline in wages. I find that the
Source: Ministry of Education.
distribution of employers changed with the reform, and that the like-
Dep variable: Ln wage (1) (2) lihood of being employed by the highest paying firms decreased.
Employers argue that some of the content that was made optional in the
Panel a: Economics new curricula was essential to the positions they offered; if that was the
Control: Industrial Engineering - Javeriana (70.8%)
case, employers would have noticed that students had less human ca-
Treatment − 0.133⁎⁎ − 0.134⁎⁎
[0.0632] [0.0635] pital through knowledge tests in the recruitment process. This suggests
Control: Industrial Engineering - Nacional (16.3%) that under the new curricula, the pool of jobs a graduate can obtain is
Treatment − 0.0719 − 0.07 smaller because they perform worse during the recruitment process,
[0.0695] [0.0695] which subsequently decreases their wages. Using recruitment data from
Control: Oil Engineering - Nacional (7%)
the Central Bank, I find support for this hypothesis and estimate that the
Treatment − 0.11 − 0.111
[0.0786] [0.0791] reform reduced the probability of being successful by 17 percentage
Control: Industrial Engineering - U Norte (6%) points.
Treatment − 0.134⁎⁎ − 0.133⁎⁎
[0.0615] [0.0614]
Appendix A. Supplementary data
Panel b: Business
Control: Oil Engineering - Nacional (46%) Supplementary data to this article can be found online at https://
Treatment − 0.197⁎⁎⁎ − 0.201⁎⁎⁎
[0.0539] [0.0539]
doi.org/10.1016/j.jpubeco.2017.10.007.
Control: Business - EAFIT (38.3%)
Treatment − 0.101⁎ − 0.101⁎ References
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