Returns to Skills Around the World: Evidence from Piaac

47 Pages Posted: 4 Jan 2014

See all articles by Eric A. Hanushek

Eric A. Hanushek

Stanford University - Hoover Institution on War, Revolution and Peace; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Guido Schwerdt

University of Konstanz - Faculty of Economics and Statistics

Simon Wiederhold

CESifo (Center for Economic Studies and Ifo Institute); Chair of Macroeconomics

Ludger Woessmann

Ifo Institute for Economic Research; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); University of Munich - Ifo Institute for Economic Research

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Abstract

Existing estimates of the labor-market returns to human capital give a distorted picture of the role of skills across different economies. International comparisons of earnings analyses rely almost exclusively on school attainment measures of human capital, and evidence incorporating direct measures of cognitive skills is mostly restricted to early-career workers in the United States.Analysis of the new PIAAC survey of adult skills over the full lifecycle in 22 countries shows that the focus on early-career earnings leads to underestimating the lifetime returns to skills by about one quarter. On average, a one-standard-deviation increase in numeracy skills is associated with an 18 percent wage increase among prime-age workers. But this masks considerable heterogeneity across countries. Eight countries, including all Nordic countries, have returns between 12 and 15 percent, while six are above 21 percent with the largest return being 28 percent in the United States. Estimates are remarkably robust to different earnings and skill measures, additional controls, and various subgroups. Intriguingly, returns to skills are systematically lower in countries with higher union density, stricter employment protection, and larger public-sector shares.

Keywords: cognitive skills, education, labor market, earnings, international comparisons

JEL Classification: J31, I20

Suggested Citation

Hanushek, Eric A. and Schwerdt, Guido and Wiederhold, Simon and Wiederhold, Simon and Woessmann, Ludger, Returns to Skills Around the World: Evidence from Piaac. IZA Discussion Paper No. 7850, Available at SSRN: https://ssrn.com/abstract=2374631 or http://dx.doi.org/10.2139/ssrn.2374631

Eric A. Hanushek (Contact Author)

Stanford University - Hoover Institution on War, Revolution and Peace ( email )

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National Bureau of Economic Research (NBER)

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CESifo (Center for Economic Studies and Ifo Institute)

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Guido Schwerdt

University of Konstanz - Faculty of Economics and Statistics ( email )

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Simon Wiederhold

CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Ludger Woessmann

Ifo Institute for Economic Research ( email )

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HOME PAGE: http://www.cesifo.de/link/woessmann_l.htm

Institute for the Study of Labor (IZA)

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Munich, DE-81679
Germany

University of Munich - Ifo Institute for Economic Research

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Germany

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