External Audit in High School and Graduates’ Labour Market Outcomes

This paper assesses the impact of auditing final high school grades on educational and labour market outcomes, leveraging a 2007 reform in Italy that introduced external examiners. We extend the combined fixed effects method to estimate how the reform affected the earnings returns to higher education. We find that 90% of the reform effect is across occupations and larger for women. We show this impact was mediated by changes in higher education choices, unlocking opportunities in occupations and earnings they wouldn’t have had otherwise. We conclude that grade inflation related to internal teacher assessment has detrimental effects on both educational and labour market outcomes.