Sheepskin effects and the returns to education in New Zealand: Do they differ by ethnic groups?

Sheepskin effects are the wage returns specific to educational credentials rather than to accumulated years of education. They can occur because credentials may signal workers' productivity. Signalling high productivity may be more valuable for members of ethnic minority groups if employers practice statistical discrimination. Many studies estimate sheepskin effects indirectly, from non-linear wage returns to schooling years that correspond to the “usual” time taken to complete a qualification, but such methods are likely to be biased. This study directly estimates sheepskin effects in New Zealand using a special survey with information on both years of education and qualifications received. The results show large sheepskin effects, with the returns to credentials exceeding the returns to years of education, especially for ethnic minorities.