The consequences of central examinations on educational quality standards and labour market outcomes

Central examinationsthat is, centrally set and marked examshave often been discussed as an instrument for improving educational outcomes. The aim of our study was to determine whether central exams have an impact not only on educational but also on labour market outcomes. We explain school quality choice through the incentives created by central exams vs. non-central exams and model the resulting students' schooling decisions and employers' wage decisions. We use the German Abitur and the variation among the German federal states with respect to central exams as a quasi-experimental design for alternative educational quality regimes. As hypothesised from our theoretical analysis, the percentage of Abitur holders increases more quickly in quality regimes without central exams than with central exams. However, as theoretically expected in the case of a pooled labour market, the wage premium decreases not only for Abitur-holders without central exams but also for all Abitur-holders. This is due to the quality deterioration in the states without central exams which spills over into a pooled labour market. Thus, graduates from states with central exams and higher educational standards 'pay' for the quality deterioration of educational standards in states without central exams.