Does High School Grade Variability Explain Long Run Labour Market Income?

We investigate how performance variability is associated with long run labor market outcomes. Using administrative data on complete grade distributions for all general high-school graduates from 2001 to 2006, we measure within-student grade variability as the standard deviation of final grades and relate it to long-run labour market income. Conditional on identical GPA and a long list of background controls, a one standard deviation increase in grade variability predicts a 4.8 percent lower income. The income differences are primarily driven by both extensive and intensive labor supply. Our results are robust in various specifications and even in a twin fixed effects analysis. In the second part of the paper, we further investigate potential mechanisms. We conjecture that performance stability is an underlying trait which impacts sorting behaviour into different higher education- and career tracks: Individuals with higher performance instability tend to sort into programmes and professions where instability is not punished or even rewarded but where the income trajectories are much more volatile. This differential sorting behaviour, especially into different fields and industries, can explain most of the income differences.