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Education, earnings and skills: a multi-country comparison


  • Kevin Denny

    () (Institute for Fiscal Studies and University College Dublin)

  • Harmon, Harmon

    (Institute for Fiscal Studies)

  • Vincent O'Sullivan

    (Institute for Fiscal Studies)


This paper uses the measures of basic skills (or functional literacy) in the International Adult Literacy Survey to examine the impact of education and basic skills on earnings across a large number of countries. We show that the estimated return to formal education is sensitive to the inclusion of these measures: excluding them biases the return to education upwards in many countries to a significant degree, usually 1 or 2 percentage points. In almost all countries, the test scores have a well-determined effect on earnings although there is considerable variation in the size of the effect. The highest returns to skills tend to be in English speaking countries. Comparing results across countries, the returns to education and the returns to basic skills are not correlated. The evidence suggests that there is considerable benefit in many countries for policy intervention to increase the skill levels of workers. This should not just be directed at dealing with low-skilled individuals there are gains across the skills distribution.

Suggested Citation

  • Kevin Denny & Harmon, Harmon & Vincent O'Sullivan, 2004. "Education, earnings and skills: a multi-country comparison," IFS Working Papers W04/08, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:04/08

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    References listed on IDEAS

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    Cited by:

    1. Marc Piopiunik, 2011. "Microeconometric Analyses of Education Production in Germany," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 40, November.
    2. Anna Vignoles & Augustin De Coulon & Oscar Marcenaro-Gutierrez, 2011. "The value of basic skills in the British labour market," Oxford Economic Papers, Oxford University Press, vol. 63(1), pages 27-48, January.
    3. Mañé Vernet, Ferran, 2010. "El retorno a las competencias para los titulados universitarios catalanes," Working Papers 2072/179591, Universitat Rovira i Virgili, Department of Economics.
    4. Silva, Olmo, 2009. "Some Remarks on the Effectiveness of Primary Education Interventions," IZA Policy Papers 5, Institute for the Study of Labor (IZA).
    5. J nos Kollo, 2013. "Patterns of Integration: Low Educated People and their Jobs in Norway, Italy and Hungary," Budapest Working Papers on the Labour Market 1315, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    6. Concetta, MENDOLICCHIO, 2005. "Gender and private returns to education : a cross-European analysis," Discussion Papers (ECON - Département des Sciences Economiques) 2005056, Université catholique de Louvain, Département des Sciences Economiques.
    7. Hanushek, Eric A. & Woessmann, Ludger, 2011. "The Economics of International Differences in Educational Achievement," Handbook of the Economics of Education, Elsevier.
    8. Köll?, János, 2013. "Patterns of Integration: Low Educated People and their Jobs in Norway, Italy and Hungary," IZA Discussion Papers 7632, Institute for the Study of Labor (IZA).
    9. repec:eme:rleczz:s0147-912120170000045005 is not listed on IDEAS
    10. 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 Publishing Ltd.
    11. Hanushek, Eric A. & Schwerdt, Guido & Wiederhold, Simon & Woessmann, Ludger, 2015. "Returns to skills around the world: Evidence from PIAAC," European Economic Review, Elsevier, vol. 73(C), pages 103-130.
    12. Vincenzo Scoppa, 2007. "Quality of Human and Physical Capital and Technological Gaps across Italian Regions," Regional Studies, Taylor & Francis Journals, vol. 41(5), pages 585-599.
    13. Kelly, Elish & McGuinness, Seamus & O'Connell, Philip J., 2012. "Literacy, Numeracy and Activation among the Unemployed," Research Series, Economic and Social Research Institute (ESRI), number RS25.
    14. Mañé Vernet, Ferran & Miravet, Daniel, 2010. "An investigation on the pay-off to generic competences for core employees in Catalan manufacturing firms," Working Papers 2072/179595, Universitat Rovira i Virgili, Department of Economics.
    15. Kelly, Elish & McGuinness, Seamus & O'Connell, Philip J., 2012. "Literacy and Numeracy Difficulties in the Irish Workplace: Impact on Earnings and Training Expenditures," Research Series, Economic and Social Research Institute (ESRI), number RS27.

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