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Skilled or Educated? Educational Reforms, Human Capital, and Earnings☆

In: Skill Mismatch in Labor Markets

Author

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  • Lorenzo Cappellari
  • Paolo Castelnovo
  • Daniele Checchi
  • Marco Leonardi

Abstract

We use OECD-PIAAC data to estimate the earnings effects of both years of education and of numerical skills. Our identification strategy exploits differential exposure to educational reforms across birth cohorts and countries. We find that education has the strongest earnings effect. A one standard deviation increase in years of education raises earnings by almost 22 percentage points (corresponding to a return to education above 7 percentage points), which compares with a lower percentage points return to an equivalent increase in numerical skills. Our results suggest that the same set of unobservables drives the accumulation of both formal years of education and numeracy skills. OLS estimates underestimate returns to human capital, consistently with the idea that educational reforms favor the human capital acquisition of abler children from disadvantaged parental backgrounds. When we consider numerical skills alone education reforms cannot identify any significant effect of skills on wages, however, when we jointly consider schooling and skills as endogenous factors in a recursive structure we find a significant role for skills in determining wages.

Suggested Citation

  • Lorenzo Cappellari & Paolo Castelnovo & Daniele Checchi & Marco Leonardi, 2017. "Skilled or Educated? Educational Reforms, Human Capital, and Earnings☆," Research in Labor Economics, in: Skill Mismatch in Labor Markets, volume 45, pages 173-197, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:rleczz:s0147-912120170000045005
    DOI: 10.1108/S0147-912120170000045005
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    Citations

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    Cited by:

    1. Mane, Ferran & Miravet, Daniel, 2016. "Using the job requirements approach and matched employer-employee data to investigate the content of individuals' human capital," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 49(2), pages 133-155.
    2. Maurizio Bussolo & Daniele Checchi & Vito Peragine, 2018. "The long term evolution of inequality of opportunity," LIS Working papers 730, LIS Cross-National Data Center in Luxembourg.

    More about this item

    Keywords

    Returns to human capital; cognitive skills; educational reforms; PIAAC; I21; I24; I26; J24; J31;
    All these keywords.

    JEL classification:

    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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