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The Merits of Ability in Developing and Developed Countries

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  • Daniel Suryadarma

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.

Suggested Citation

  • Daniel Suryadarma, 2010. "The Merits of Ability in Developing and Developed Countries," CEPR Discussion Papers 645, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  • Handle: RePEc:auu:dpaper:645
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    File URL: https://www.cbe.anu.edu.au/researchpapers/cepr/DP645.pdf
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    References listed on IDEAS

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    1. Rothstein, Jesse & Rouse, Cecilia Elena, 2011. "Constrained after college: Student loans and early-career occupational choices," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 149-163, February.
    2. Bruce Chapman & Andrew Leigh, 2009. "Do Very High Tax Rates Induce Bunching? Implications for the Design of Income Contingent Loan Schemes," The Economic Record, The Economic Society of Australia, vol. 85(270), pages 276-289, September.
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    4. Chapman, Bruce & Lounkaew, Kiatanantha, 2010. "Income contingent student loans for Thailand: Alternatives compared," Economics of Education Review, Elsevier, vol. 29(5), pages 695-709, October.
    5. Bruce Chapman & Kiatanantha Lounkaewa, 2010. "Repayment Burdens with US College Loans," CEPR Discussion Papers 647, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    6. Sergio Firpo & Nicole M. Fortin & Thomas Lemieux, 2009. "Unconditional Quantile Regressions," Econometrica, Econometric Society, vol. 77(3), pages 953-973, May.
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    More about this item

    Keywords

    income; ability; mathematics; cognitive; Indonesia; United States;

    JEL classification:

    • I20 - Health, Education, and Welfare - - Education - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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