Graduates of Elite Universities Get Paid More. Do They Perform Better?
A busy HR manager is reviewing stacks of applications for a position that just opened in the company. The HR manager knows that a host of factors determine employee performance: prior experience, training, interpersonal skills, personality, IQ, emotional intelligence, and work ethic. But after reviewing hundreds of resumes, as many HR managers do, the details on each applicant blur together. And so the HR manager does what many employers do: defaults to selecting hires based on the prestige and rank of the university from which graduates hail.
Presumably, better universities attract better students and provide better training, so it makes sense to use the university rank as a predictor of employee performance. This, after all, is why employers offer higher starting salaries to hires selected from prestigious schools. But is it a good hiring strategy? Do university rankings predict job performance? Our research suggests yes — but only to a degree.
Why top-tiered college graduates perform (nominally) better than their peers
In a recent study, we tested the relationship between the university rank and performance of graduates. We tracked the performance of 28,339 students from 294 universities in 79 countries. The students came from 294 universities that ranked from Top 10 to about top 20,000 in the Webometrics global university rankings that rank over 30,000 universities worldwide. We observed the students’ performance for two months as they were working in global virtual teams on real-life business consulting projects for a number of corporate clients. Importantly, we captured not only the quality of the output, but a wide range of hard and soft competencies including cooperation with team members, leadership, language proficiency, technical skills, emotional intelligence, creativity, and more.
Our results offer some solace to the traditional recruiters. After controlling for age, gender, and the year of study, we found that graduates from higher-ranked universities performed better, but only nominally and only on some dimensions of performance. Specifically, the overall performance improved by only 1.9% for every 1,000 positions in the Webometrics global university rankings. When comparing the performance of candidates whose universities rank further apart — a graduate from a top university versus a “global average” university — the performance differential jumps to 19%.
The 19% difference in performance between the top and the average seems significant, but keep in mind that this is for graduates from universities that are 10,000 university ranking positions apart. At a given organization, candidates are likely to be selected from within a much narrower pool, perhaps from universities whose rankings differ by a couple of hundred positions. In this more realistic case, the predicted difference in performance would be closer to 1%.
We found several reasons why the graduates from the top universities performed somewhat better than those from the lower-ranked schools. The first was selection: higher-ranked universities usually can choose from a larger pool of applicants, which leads to steeper competition and a higher quality of the incoming class. Corroborating the selectivity hypothesis, our data demonstrated that students at higher-ranked universities indeed score higher on general cognitive ability tests, have more international experience, better English proficiency, and higher cultural intelligence. However, competitive selection suggests that these competencies may have been attained earlier in their education and, thus, is not a result of their university studies.
Second, higher-ranked universities should provide better training. Top universities employ better instructors, offer access to better-equipped facilities, attract better speakers and guests to campus, which in turn, should lead to better training and subsequent performance. Indeed, our data suggest that students at higher-ranked universities score higher on competencies that could be attributed to better training, such as superior technical and business writing skills, are more knowledgeable in subjects related to the business project, and score higher on team leadership and coordination.
Finally, while it might be expected that higher-ranked institutions might provide a more stimulating academic environment, we did not document that this had an effect on graduates’ work performance. Indeed, education is not only lectures and seminars. Having notable, hardworking, celebrity-status professors, along with being around intelligent, highly-motivated, achievement-oriented peers, positively affects self-efficacy, motivation, effort, and work ethic. However, our study revealed no difference in these performance-related attributes. Based on our data, the institutional environment did not seem to play a role in enhancing performance. Graduates from lower-ranked universities showed an equal level of motivation and work ethics, so this could be more affected by personality and other individual factors.
The downsides of superior academic pedigree
Despite their slightly better overall performance, hiring graduates from higher-ranked institutions could have a downside. Our data suggest that students from higher-ranked universities might damage team dynamics, sometimes inadvertently. We found that graduates from higher-ranked universities tend to excessively focus on the instrumental tasks, often at the expense of paying insufficient attention to interpersonal relationships. In some instances, graduates from top universities tend to be less friendly, are more prone to conflict, and are less likely to identify with their team.
Numerous studies have shown that interpersonal relationships at work play a critical role in employee motivation, job satisfaction, and, ultimately, performance and career success. As good interpersonal relationships are critical for organizational success, lacking collegiality and a propensity towards conflict could present adverse effects not only on personal performance, but also team and workgroup efficacy, possibly leading to an overall net loss.
Notably, graduates from high-ranking universities tend to share a common identity and could see themselves as different from their team members from a lower-ranking university, and this social categorization can lead to us-vs.-them dynamics. As a result, graduates from top universities could be perceived by their co-workers with less impressive academic pedigrees as arrogant and snobby, and because of that not liked by their peers. Our data did not confirm that this was the case. In fact, students from more prestigious universities tended to be more modest in their self-evaluations than some of their peers from lower-ranked institutions. However, we found that while students from higher-ranked universities generated more conflict, engaged in fewer non-instrumental conversations, and displayed less team commitment and identification with their teams.
So, whom should you hire?
While job candidates from more prestigious universities may slightly outperform their peers, data from Payscale and the U.S Department of Education show that these graduates are also more expensive to hire. For example, the average early career salaries of graduates from the top 10 colleges ($72,160) in the United States are 47% higher than those with degrees from the ten colleges within the City University New York (CUNY) school system ($48,960), many of which are ranked within the top 100. At the 6-year mark, that gap jumps to 108 percent.
Is the extra cost worth the investment? To answer this question, employers need to carefully consider the worth of the increase in performance for the firm. For some companies, the difference between a hypothetical graduate from an “average” vs. “top” university may be well worth the extra pay. Yet, for others, the added cost may not result in a positive return on investment and, thus, may not be justified. All in all, our results suggest that hiring graduates from higher-ranked universities would lead to a nominal improvement in performance. However, the university rank alone is a poor predictor of individual job performance. Employers can get a much better deal by hiring the “right” students from lower-ranked institutions, than “anyone” from better-ranked institutions. It would also be wise to use additional tests designed to evaluate the technical and interpersonal competencies needed for the job.
Considering the growing gap between skills acquired in college versus on-the-job readiness, any modest performance advantage stemming from the university rank might also be mitigated by on-the-job training. Since employers already invest significant resources into training new hires, such training may be a much better determinant of performance than the rank of the university from which the hire hails.
To a large extent, the answer would also depend on specific job demands. Does the job require a top performer from a higher-ranked university where even a 2% improvement in performance is critically important and offsets any pay differential? Or can the performance criteria be met by graduates from lesser-ranked universities? To make the most strategic decision, an HR manager should know the answer to this question before they look at an applicant’s college pedigree.
Contributors to this article include:Alexander Assouad, assistant professor of IB and Strategy at Belmont University; Alfredo Jimenez, associate professor at KEDGE Business School; Justin Kraemer, lecturer at Mae Fah Luang University; Anna Svirina, Dean of Engineering Economics and Entrepreneurship School at the Kazan National Research Technical University; Weng Si (Clara) Lei, program coordinator of Tourism Event Management and Assistant Professor at the Macao Institute for Tourism Studies.