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The Merits of Ability in Developing and Developed Countries

Daniel Suryadarma

No 645, CEPR Discussion Papers from Centre for Economic Policy Research, Research School of Economics, Australian National University

Abstract: Different economic characteristics between developing and developed countries may require worker with different skills, resulting in different returns to the same ability. Moreover, it is also possible that different countries require different skills depending on their economic fundamentals. This paper provides evidence of the hypotheses above by comparing the labour market returns to numeracy and cognitive ability in Indonesia and the United States. In Indonesia, I find that numeracy has no significant effect on income, while general cognitive ability positively affects income. In the United States, meanwhile, I find that only mathematics ability is significant. Looking at the returns by sex, I find that the benefits of higher cognitive skills only pertain to males in Indonesia, while females have higher returns to numeracy than males in the United States. These results are robust to different specifications. Overall, these differences in returns to ability between Indonesia and the United States indicate that different economic structures indeed demand different sets of skills.

Keywords: income; ability; mathematics; cognitive; Indonesia; United States (search for similar items in EconPapers)
JEL-codes: I20 J31 (search for similar items in EconPapers)
Date: 2010-10
New Economics Papers: this item is included in nep-dev and nep-sea
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