The Consequences of Letter Grades on Labor Market Outcomes and Student Behavior

I study the consequences of letter grades serving as coarse measures of academic achievement using university administrative data that record both the letter grade and the precise mark (0-100) received for each course that a given student takes. I exploit a regression discontinuity design with marks as the running variable. I find that receiving a better grade in a single class results in USD 32 greater monthly earnings after graduation, a 1.4% increase. I also find that marginal students who receive a worse grade take significantly easier courses and earn lower grades in future semesters.