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This paper distinguishes between the human capital and signaling theories by estimating the earnings return to a high school diploma. Unlike most indicators of education (e.g., a year of school), a diploma is essentially a piece of paper and, hence, by itself cannot affect productivity. Any earnings return to holding a diploma must therefore reflect the diploma�s signaling value. Using regression discontinuity methods to compare the earnings of workers who barely passed and barely failed high school exit exams�standardized tests that students must pass to earn a high school diploma�we find little evidence of diploma signaling effects.
