Firm-specific pay premia and the returns to higher education: Evidence from community colleges

Abstract

There is an increasing consensus that firm-specific premia are an important determinant of wages, but there is little evidence regarding their roles in the returns to education. This paper examines the extent to which completing an associate degree increases earnings through access to higher-paying firms. Using administrative data on college enrollment and labor market outcomes from Ohio, I estimate that completing an associate degree leads to employment at firms of higher firm-specific premia by approximately 6 %, suggesting that more than one-quarter of the returns to associate degrees is attributable to moving to higher-paying firms.