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Returns to skills around the world: Evidence from PIAAC

Eric Hanushek (), Guido Schwerdt (), Simon Wiederhold () and Ludger Woessmann ()

European Economic Review, 2015, vol. 73, issue C, 103-130

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 23 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. Instrumental-variable models that use skill variation stemming from school attainment, parental education, or compulsory-schooling laws provide even higher estimates. 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 (search for similar items in EconPapers)
JEL-codes: I20 J31 (search for similar items in EconPapers)
Date: 2015
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Related works:
Working Paper: Returns to Skills around the World: Evidence from PIAAC (2014) Downloads
Working Paper: Returns to Skills around the World: Evidence from PIAAC (2014) Downloads
Working Paper: Returns to Skills Around the World: Evidence From PIAAC (2013) Downloads
Working Paper: Returns to Skills around the World: Evidence from PIAAC (2013) Downloads
Working Paper: Returns to Skills around the World: Evidence from PIAAC (2013) Downloads
Working Paper: Returns to Skills Around the World: Evidence from PIAAC (2013) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:73:y:2015:i:c:p:103-130

DOI: 10.1016/j.euroecorev.2014.10.006

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