Returns to Education through Access to Higher-Paying Firms: Evidence from US Matched Employer-Employee Data

What are the sources of the returns to education? We study the allocation of higher education graduates from public institutions in Ohio across firms. We present three results. First, we confirm findings in the earlier literature of large pay differences across degrees. Second, we show that up to one quarter of pay premiums for higher degrees are explained by between-firm pay differences. Third, higher education degrees are associated with greater representation at the best-paying firms. We conclude that employer heterogeneity is an important factor in mediating the returns to education.