Grades and Employer Learning

We identify the labor market returns to university grade pointaverages (GPA) by leveraging a nationwide change in the scal-ing of grades in Danish universities. Our results show thata reform-induced increase in GPA that is unrelated to abilitycauses higher earnings immediately after graduation, but the ef-fect fades in subsequent years. The effect at labor market entry islargest for individuals with fewer alternative signals. Althoughemployers initially screen candidates based on skill signals, ourfindings are consistent with a model in which employers rapidlylearn about worker productivity.