From Flagship to Firm: Gatekeeping, Employer Sorting, and the Returns to College

Firms increasingly drive college graduates' labor market earnings, yet the vast literature on the value-added of college has largely overlooked their role. Drawing on human capital theory and institutional theories of credentialism, closure, and organizational matching, I argue that college-to-workplace pipelines are a critical driver of college value-added. To test this, I assemble a novel US employer-employee matched dataset merged with postsecondary and high school academic records. Firm placement explains much of the variation in earnings premiums between colleges. Absent firm sorting, the range of counterfactual earnings differences across colleges would fall by 56%, and over half of the earnings advantage to attending the state flagship comes from access to higher-paying employers. These sorting effects extend broadly across the distribution of high-wage firms, and not merely a handful of elite employers. Crucially, sorting effects do not simply reflect skill-based advantages, implying that college quality derives as much from institutional linkages to the labor market as from human capital development. Policies aimed at broadening recruitment pipelines, rather than solely improving instructional inputs, are therefore essential to reducing inequalities in the economic returns to higher education.