Measuring inflation in grades: An application of price indexing to undergraduate grades

Rising average grades at American universities have prompted fears of “grade inflation.” This paper applies the methods used to estimate price inflation to examine the causes of rising grades. We use rich data from a large public university to decompose the increase in average grades into those components explained by changes in student characteristics and course choices, and the unexplained component, which we refer to as “inflation.” About one-quarter of the increase in grades from 1982 to 2001 was driven by changes in the courses selected by students; enrollment shifted toward historically ‘easier-grading’ departments over time, mechanically increasing average grades. An additional one-quarter of the increase is attributable to increases in the observable quality of students, such as average SAT scores. Less than half of the increase in average grades from 1982 to 2001 appears to arise from the unexplained factors, or “inflation.” These results add to the evidence suggesting that differences in relative grades across departments discourage students from studying in low-grading departments, like math, physics, or engineering.