Returns to Skills Around the World: Evidence from PIAAC

46 Pages Posted: 11 Feb 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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Date Written: January 31, 2014

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: J310, I200

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 (January 31, 2014). CESifo Working Paper Series No. 4597, Available at SSRN: https://ssrn.com/abstract=2393982 or http://dx.doi.org/10.2139/ssrn.2393982

Eric A. Hanushek

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

Stanford, CA 94305-6010
United States
650-736-0942 (Phone)
650-723-1687 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Guido Schwerdt

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

Universitaetsstr. 10
78457 Konstanz
Germany

Simon Wiederhold

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

Poschinger Str. 5
Munich, DE-81679
Germany

Chair of Macroeconomics

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Ingolstadt, 85049
Germany

Ludger Woessmann (Contact Author)

Ifo Institute for Economic Research ( email )

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Munich
Germany
++49 89 9224 1699 (Phone)
++49 89 9224 1460 (Fax)

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

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

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

Poschinger Str. 5
Munich, DE-81679
Germany

University of Munich - Ifo Institute for Economic Research

Schackstr. 4
Munich, 80539
Germany

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