Returns to Graduate and Professional Education: The Roles of Mathematical and Verbal Skills by Major

Song, Moohoun; Orazem, Peter

WP #05028, October 2005

Students in majors with higher average quantitative GRE scores are less likely to attend graduate school while students in majors with higher average verbal GRE scores are more likely to attend graduate school.  This sorting effect means that students whose cognitive skills are associated with lower earnings at the bachelor’s level are the most likely to attend graduate school.  As a result, there is a substantial downward bias in estimated returns to graduate education.  Correcting for the sorting effect raises estimated annualized returns to a Master’s or doctoral degree from about 5% to 14.5% and 12.6% respectively.  Estimated returns to professional degrees rise from 14% to 20%.  These findings correspond to a large increase in relative earnings received by post graduate degree holders in the United States over the past 20 years.

JEL Classification: J30

Keywords: sorting, Phd degree, Master's degree, Professional degree, GRE, Returns, Graduate Education, verbal ability, mathematics ability