The Impact of Early Grading on Academic Choices: Mechanisms and Social Implications

Does early grading affect educational choices? To answer the question, I exploit the staggered implementation of a reform which postponed grade assignment in Swedish compulsory school. I identify short- and long-term effects of early grading, for students with different academic ability and socioeconomic status (SES). When graded early on, high-ability students (especially if high-SES) perform better, and are more likely to choose academic courses during compulsory school. Low-ability students react in the opposite way, in particular if low-SES. While high school attainment increases for high-ability low-SES students, college attainment decreases for low-ability low-SES students. None of these effects carry over to the labor market. This suggests that early grades improve the match between early education choices and academic ability, reduce over-investment in education, but exacerbate educational inequality. I find no evidence of demotivating effects for low-ability students, a plausible mechanism through which grades could affect education choices, and the main motivation behind the grading reform. Theoretically, I show that short-term effects are in line with the predictions of a model where students learn about their ability from SES and grades.