Human Capital Attainment, University Quality, and Entry-Level Wages for College Transfer Students

1. Introduction The U.S. higher education population is highly mobile. Tinto (1987) finds that roughly 35% of college graduates from the National Longitudinal Study of the High School Class of 1972 graduate from a different institution than the one they first attend. Recent evidence suggests that the percentage of college attendees choosing to transfer is on the rise. For instance, a U.S. Department of Education survey of 1992 college graduates finds that over half of the roughly 11,000 students interviewed had attended more than one institution during their college careers (National Center for Education Statistics 1996). Despite their obvious place in American higher education, very little is known about college transfer students. The economics of higher education literature has devoted much attention to the economic returns to college attendance and the causes and consequences of college dropouts. Within the vast literature, however, the transfer student has largely been neglected. This is particularly regrettable, as transfer students present the researcher with additional, potentially valuable information that nontransfers do not. In particular, transfer students will have taken courses at more than one quality institution. This fact can possibly be exploited to provide insight into the role of human capital accumulation in determining a student's postgraduation earnings. A common problem in the economics of higher education literature is that the well-known positive return to the quality of university from which a student graduates is predicted by both human capital and screening theories (for a more detailed discussion, see Weiss 1995). Much of this confusion may be based on the fact that previous studies have focused only on graduation quality. While such an approach is accurate for nontransfers, it is not accurate for transfer students. Transfer students clearly complete courses at institutions that are of different qualities. The human capital theory has implications for the predicted returns to initial quality and tenure for transfer students, while the screening theory does not. Thus, the returns to initial quality and tenure may be used to generate some idea which model more accurately describes the role of educational attainment in determining a student's entry-level earnings. This study is one of the first to separately examine the economic returns to college attendance for transfer students. In particular, I focus on the returns to quality and educational tenure at institutions other than the one from which a transfer student graduates and ask what implications such values have for human capital theory. A theoretical discussion describes how the educational experiences of college transfer students can be used to address the role of human capital accumulation in determining a college graduate's entry-level earnings. Specifically, to be consistent with human capital theory, the quality of all institutions attended should have positive effects on future earnings, while the length of time spent at each institution is uncertain. The longitudinal nature of the data set analyzed allows me to improve the efficiency of my estimates by employing panel data techniques. Using random effects generalized least squares (GLS), I find significant, positive, and statistically similar returns to both initial and graduation quality and insignificant effects for both initial and graduation tenure. In other words, by finding that both initial and graduation quality have significant positive effects on future earnings, the results can be considered consistent with the predictions of the human capital theory. 2. Theory To frame the empirical work here, I start by developing a simple model of college choice. In choosing a college, the prospective student has thousands of options to consider. This choice set will differ for each student as it is limited to only those colleges to which he or she is able to gain admission. …