What is it About Schooling that the Labor Market Rewards? The Components of the Return to Schooling
27 Pages Posted: 1 May 2007 Last revised: 14 Oct 2007
Date Written: October 2, 2007
Abstract
This paper shows that when specifically controlling for schooling cognitive skills (e.g. the capacity to process information and apply knowledge) and not cognitive skills as a whole, close to 70% of the return to schooling is cognitive. This contrasts with the previous literature that strongly favored the noncognitive hypothesis (e.g. behavioral and personality traits). If one believes such results schools are a place where one acquires or is sorted primarily on a knowledge criterion and not so much on a behavioral one. Findings also suggest that cognitive skills acquired in school are significantly more likely to be rewarded than their non-schooling counterpart. This effect may be attributed to the signaling value of schooling.
Keywords: Schooling, Cognitive and noncognitive skills, Wages, Rate of return, Omitted variable bias, Signaling
JEL Classification: I21, J24, J31
Suggested Citation: Suggested Citation