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Credential Effect

The term credential effect is used to describe the increase in wages or earnings associated with earning an educational credential. This phenomenon is also described using the term sheepskin effect, which refers to the historical use of sheepskin leather for educational diplomas prior to the use of parchment paper. This entry describes the different uses of these terms, the significance of credential effects for distinguishing between human capital and signaling theories of the wage effects of schooling investments, and the empirical evidence on the existence of credential effects.

Wage Differences by Credential Status Versus Causal Effects of Credentials

It is useful to distinguish between two different uses of the terms sheepskin effect and credential effect. The first is the observed difference in wages between workers who hold ...

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