That is the conclusion from a new paper by Rebecca Diamond and Peta Persson (pdf), on Swedish data, here is part of the abstract:
Despite the fact that test score manipulation [by teachers] does not, per se, raise human capital, it has far-reaching consequences for the beneficiaries, raising their grades in future classes, high school graduation rates, and college initiation rates; lowering teen birth rates; and raising earnings at age 23. The mechanism at play suggests important dynamic complementarities: Getting a higher grade on the test serves as an immediate signaling mechanism within the educational system, motivating students and potentially teachers; this, in turn, raises human capital; and the combination of higher effort and higher human capital ultimately generates substantial labor market gains. This highlights that a higher grade may not primarily have a signaling value in the labor market, but within the educational system itself.
Again, the result is that “encouragement effects,” or alternatively “writing off effects,” are stronger than many of us might think. Tell people enough times that they are a certain way, and eventually they will start to believe you. I would say this is evidence for my “beasts into men” theory of education, though other interpretations are not ruled out.
For the pointer I thank Ben Southwood.