Returns to Skills

The Central Role of Skills for Success on the Labor Market

Educational achievement plays a crucial role for the success of individuals on the labor market. Using data from the adult achievement test PIAAC, 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.

Two-pager:

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

Here you can learn more about my research on this topic.

My most important academic paper on the topic is:

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

I provide a non-technical overview in:

The Economic Case for Education. Education Economics 24 (1): 3-32, 2016

Additional material is available in German.