Does the Sheepskin Effect Guarantee Higher Salaries?

Does the Sheepskin Effect Guarantee Higher Salaries?

Arguably one of the best determinants of higher salaries in the labor market is the level of educational attainment that an employee has. This is not a surprise, since it's not unusual to see managers and corporate leaders who are graduates of universities and colleges and holders of two-year or four-year or more degrees. While there are exceptions to the rule, there certainly seems to exist a sheepskin effect on both education and earnings.

What the sheepskin effect is
The sheepskin effect is also called the credential effects. It refers to the economic increases in earnings that can be associated with the completion of a degree or a diploma, including high school, associate and university degrees.

While earlier studies regarding the labor market assume that the only variable that is relevant is the total number of years spent in getting an education, some evidence indicate that degrees do have an effect on educational returns as an independent factor. Also a consideration is the number of years it would take to complete a program.

Sheepskin Effect on gender difference
Women who complete a certificate course can increase their earnings, but for men, the same course doesn't offer a significant economic advantage, statistically speaking. Women who finish a certificate degree can earn at least 15% more than their female colleagues who just finished high school. Their male counterparts, however, don't enjoy the same significant economic advantage.

Women who complete a certificate also don't earn a significant amount compared to those who complete at least a year of post-secondary education but don't complete a degree. For this group, there is no sheepskin effect. Also, men who receive a certificate don't have a significant economic advantage over their high school counterparts.

The associate advantage
Associate degrees also prove to be very beneficial economically for both men and women, although the benefits are higher for students who earn occupational degrees that it is for students who get academic degrees. The sheepskin effect is also positive for occupational female students with associate degrees. A sheepskin effect also exists in men involved in occupational programs and complete an associate degree compared to other men who have no post-secondary education.

Employability and earnings for bachelor degrees
Employment potential and results also improve as the number of completed years of education increase. Earning a bachelor's degree increases economic benefits by at least 66% for women and 37% for men compared to their colleagues with only a high school education. Also, men and women with bachelor degrees enjoy at least four times more in terms of economic returns compared to baccalaureate individuals with a year of post-secondary education but don't hold a degree. In this case, researchers don't find enough data to support the existence of a sheepskin effect.

There is, however, a disparity in earnings between men and women with the same level of education. Almost 97% of men with sub-baccalaureate degrees are employed compared to just 85% of women with the same educational level. Men also receive about $3 more per hour of work than do women.

However, studies also show that as the level of education increases, the income disparity between men and women with the same educational level decreases.

Conclusion
Many studies in the past have concluded that sheepskin effect is negligible; however, these studies appear to lack detailed data that can sufficiently estimates the scale of educational credentials, specifically the years of completed schooling and the certificates, diplomas and degrees received. As long as the number of years of completed schooling is controlled, substantial salary gains or earnings can be associated with a degree, diploma or certificate in the labor markets of both the US and Canada.

A baccalaureate degree can help increase economic returns by 10 to 15% compared to an associate degree. A sub-baccalaureate degree has a 15 to 25 % increase in economic returns compared to a high school diploma or equivalent.

The sheepskin effect doesn't indicate that the level of education will guarantee nor increase worker productivity but it does inform the employer what a particular worker's qualifications are and what he is capable of. This signal helps the employer determine whether to place the worker in high-productivity jobs or low-productivity jobs.

This placement then affects the worker's ability to earn – high-productivity jobs pay substantially compared to low-productivity jobs. Therefore, low-productivity jobs that are menial and routine are relegated to workers who are expected to produce less than to workers who have higher credentials. This makes workers with higher levels of education generally become associated with jobs that are more stable and better sustaining economically.