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.
Returns to Skills Around the World
Evidence from PIAAC
Working paper
OECD Education Working Papers
Share
Facebook
Twitter
LinkedIn