What does successful university graduation signal to employers? A factorial survey experiment on sheepskin effects

Higher education graduates enjoy substantial labour market advantages over similar individuals who attended higher education but did not complete a degree. We use a hiring survey experiment with 335 German employers to explore possible explanations for these ‘sheepskin effects’, while addressing concerns about unobserved confounding in observational studies. Across 2680 hypothetical job applicants, employers were nearly 1.8 times more likely to invite graduates for an interview than otherwise identical non-completers and were also willing to pay graduates substantially higher starting salaries. Using a unique survey module on employers’ perceptions, we show that the average employer perceives degree-holders to outperform non-completers in terms of occupation-specific and non-cognitive skills but not in terms of general cognitive skills. These employer perceptions predict hypothetical hiring behaviour in that those who view graduates more favourably showed a stronger preference for this group in the survey experiment. We discuss these results in relation to signalling, human capital, and credentialism explanations of sheepskin effects.