College-level grade inflation and the changing relationship between grades and wages

This paper documents the rise in college grades and examines how the relationship between grades and the wages of students entering the labor market changed between 2001 and 2017. Diminishing marginal returns to GPAs are observed across the wage distribution, particularly among non-STEM majors, whereas GPAs have little effect on the wages of STEM majors. Changes in the returns to GPAs account for a larger portion of wage differentials than changes in the distribution of GPAs. Overall, the results suggest that grade inflation weakens the signaling power of grades, which may partly explain the reduced returns to GPAs among non-STEM majors.