In response to widening achievement gaps and increased demand for post-secondary education, local and federal governments across the US have enacted policies that have boosted high school graduation rates without an equivalent rise in student achievement, suggesting a decline in academic standards. To the extent that academic standards can shape effort decisions, these trends can have important implications for human capital accumulation. This paper provides both theoretical and empirical evidence of the causal effect of academic standards on student effort and achievement. We develop a theoretical model of endogenous student effort that depends on grading policies, finding that designs that do not account for either the spread of student ability or the magnitude of leniency can increase achievement gaps. Empirically, under a research design that leverages variation from a statewide grading policy and school entry rules, we find that an increase in leniency mechanically increased student GPA without increasing student achievement. At the same time, this policy induced students to increase their school absences. We uncover stark heterogeneity of effects across student ability, with the gains in GPA driven entirely by high ability students and the reductions in attendance driven entirely by low ability students. These differences in responses compound across high school and ultimately widen long-term achievement gaps as measured by ACT scores.
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