The Crucial Role of Skills on the Labor Market

Better educational achievement pays off not only for the economy as a whole, but also for the individual. To show this, we use data from the adult achievement test PIAAC, the so-called "PISA for adults." We find that there are substantial returns to skills on the labor market: Performing one stage better on the five-stage skill test is on average associated with roughly 20% higher wages. But there is considerable heterogeneity across countries, ranging from 12-15% in Nordic countries to 28% in the United States.

A comparison across 32 countries reveals that returns to skills are larger in faster growing economies. This results indicates that an important element in the economic value of education may consist in the ability to adapt to a economic change.

Here you can find a short non-technical overview on this topic.

Research papers:

Returns to Skills around the World: Evidence from PIAAC (with E.A. Hanushek, G. Schwerdt, and S. Wiederhold). European Economic Review 73: 103-130, 2015

Coping with Change: International Differences in the Returns to Skills (with E.A. Hanushek, G. Schwerdt, and S. Wiederhold). Economics Letters 153: 15-19, 2017

Skills, Earnings, and Employment: Exploring Causality in the Estimation of Returns to Skills (with F. Hampf and S. Wiederhold). Large-scale Assessments in Education 5 (12): 1-30, 2017

Two-pager:

Workers’ Skills Are Crucial for Success on Modern Labor Markets (with S. Wiederhold). EENEE Policy Brief 2/2013

Material available only in German

Short contributions:

PIAAC – Die zentrale Rolle von Kompetenzen für den Erfolg am Arbeitsmarkt. Freie Bildung und Erziehung 90 (1): 4-7, 2014

Bildung lohnt sich. DSW Journal 8 (4): 32-33, 2013

Non-technical contributions:

Bildungserträge (with F. Kugler). In: O. Köller, M. Hasselhorn, F.W. Hesse, K. Maaz, J. Schrader, H. Solga, C.K. Spieß, K. Zimmer (eds.), Das Bildungswesen in Deutschland: Bestand und Potenziale, Bad Heilbrunn: Julius Klinkhardt / UTB, 231-261, 2019

Bildung und Arbeitsmarkterfolg: Gerade in Deutschland zahlen sich höhere Kompetenzen aus (with S. Wiederhold). ifo Schnelldienst 66 (22): 10-14, 2013

Grundlegende Kompetenzen auf dem Arbeitsmarkt (with A. Klaukien, D. Ackermann, S. Helmschrott, B. Rammstedt and H. Solga). In: B. Rammstedt (ed.), Grundlegende Kompetenzen Erwachsener im internationalen Vergleich: Ergebnisse von PIAAC 2012, Münster: Waxmann, 127-166, 2013