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In this paper, I argue that although some scholars have found that nearly 60% of educational achievement gap and labor market outcomes is explained by family background, schools effects play a significant role in contributing to reduce such gaps, especially in the context of developing countries. Scholars have shown that schools matter but it is important to understand how much schools matter to improve not only educational achievement but labor market transitions as well. Previous literature has studied how variations of student outcomes are attributable to school effects, or how much of the variation is attributed to family background. Using educational achievement as a mediator, I argue that upper secondary schools in Mexico can contribute significantly to improve transitions from upper secondary education to the labor market and higher education. I develop a conceptual framework that derives from education production functions in public schools (Hanushek, 1986) and school effects (Raudenbush and Williams (1995) theories to understand the channels through which school characteristics can affect transitions from upper secondary education using educational achievement as a mediator. I analyze what aspects of schools ranging from curriculum to teacher characteristics can affect more significantly each type of transition (higher education, employment, unemployment and inactivity). Furthermore, I compare the magnitude of school effects to that of family background such as income level and parental education and occupation.