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Fraternity membership and labor market outcomes.

College "Greek"-style fraternities have been an important part of U.S. campus life since the nation's founding. Although they have always represented a minority of the students at colleges and universities, fraternities and their members have wielded considerable influence--both on campus and off. For example, most U.S. Presidents were members of fraternities. And while fraternities are primarily social organizations, their advocates claim that members get better grades, are more involved in campus life, and earn higher incomes after graduating than their nonfraternity counterparts. Prospective employees regularly include membership in fraternities and sororities on their resumes, which suggests that employers use that information in some way during the applicant-screening process. But why should being a member of one of these organizations have a positive effect on labor market outcomes? After all, fraternities and sororities generally require their members to devote considerable time to the organization, and students arguably could use that time more productively by studying and developing the skills they will need for their future careers.

In "Fraternities and Labor-Market Outcomes" (American Economic Journal: Microeconomics, American Economic Association, February 2012), economists Sergey V. Popov and Dan Bernhardt attempt to shed some light on this issue by developing what they call "a theory of fraternity membership and filtering by firms." Drawing on James M. Buchanan's seminal work on club membership ("An Economic Theory of Clubs," Economica, February 1965), the authors construct a model to examine the complex "signaling" interplay between three economic agents--students, fraternities, and firms. In the model, students have a "fraternity socializing value" and a projected level of worker productivity. Fraternities value both the socializing skills and the future wages of their members. Firms set wages by combining applicants' fraternity membership status with imperfect information ("noisy signals") about applicants' expected productivity as workers. Popov and Bernhardt test a number of hypotheses under varying conditions in an effort to isolate the purely economic factors involved in a given student's decision to join a fraternity or sorority and the filtering process firms use to choose among job applicants.

Popov and Bernhardt begin by identifying the conditions necessary for fraternity membership to have no effect on labor market outcomes. Specifically, they show that if firms receive "perfectly informative" or "perfectly noisy" signals about an applicant's productivity, then equilibrium wages are affected only by the students' socializing skills. The authors then show that for fraternity membership to have an effect on labor market outcomes, firms must receive productivity signals "that are noisy, but not perfectly so." Because more productive students earn higher wages, fraternities trade off between productivity and fraternity-socializing values when making decisions about which pledges to accept. Students confront a different kind of trade-off: those with higher productivity values may experience a negative effect from joining a fraternity and thus be less likely to pledge.

Popov and Bernhardt, using a "three-signal setting" to determine three kinds of equilibriums, find that data support a "single-peaked" equilibrium, in which the majority of fraternity members fall into the intermediate skill-level category--some less able students apply but are accepted only if they have strong socializing skills, while students with greater ability but lacking socializing skills do not apply. The researchers look at a randomly selected sample of students at the University of Illinois who were seniors in 2007; after eliminating those whose average was below 2.0, Popov and Bernhardt find that fraternity members, representing about a sixth of the senior student population, had higher overall grade point averages than the rest of the seniors, but students with the highest averages were more likely to be nonmembers.

Popov and Bernhardt conclude from their analysis that under certain conditions, fraternity or sorority membership does have an effect on labor market outcomes--even when they "assume away" any correlation between productivity and socializing skills in order to focus on the decision-making and filtering process among students, fraternities, and employers. They identify two equilibriums in which students value membership for its positive labor market effects. In the first, membership leads to higher wages because firms believe that fraternity members possess greater skills and abilities than nonmembers. Under this scenario, all of the students that the fraternity would like to become a pledge do so. In the second equilibrium, more able students experience a negative effect on labor market outcomes from their membership in fraternities, while students with less ability benefit from membership. In this case, most fraternity members' abilities fall in the intermediate range, which accords with the authors' empirical data from the University if Illinois. In concluding their article, Popov and Bernhardt suggest that their analysis might be extended to other campus membership organizations, such as the Reserve Officers' Training Corps (ROTC).
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Title Annotation:Precis
Publication:Monthly Labor Review
Geographic Code:1USA
Date:Dec 1, 2012
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