US Economy Rewards Workers' Literacy And Numeracy Skills More Than Other Countries: Increases In Unionization, Government Workers And Employment Protection Lower The Value Of Employee Skills

From National Bureau Of Economic Research, "Returns To Skills Around The World: Evidence From Piaac" by Eric A. Hanushek, Guido Schwerdt, Simon Wiederhold and Ludger Woessmann, Working Paper 19762:

1. Introduction
***New international data from the Programme for the International Assessment of Adult Competencies (PIAAC) dramatically changes the ability to understand how economies value skills. Using these data, this paper provides new insights into the value of skills in different economic settings by developing estimates of the earnings returns to cognitive skills across the entire labor force for 22 countries.***Our results confirm that estimates based on early-career earnings underestimate the lifetime returns to skills, in our analyses by an average of about one quarter. Across the 22 countries, a one-standard-deviation increase in numeracy skills is associated with an average 18 percent wage increase among prime-age workers. Moreover, because of measurement errors in skills, these estimates should be thought of as lower bounds on the return to skill.

But this overall measure of returns to skill also masks considerable cross-country heterogeneity: Returns are below 15 percent in eight countries, including all four participating Nordic countries, and above 21 percent in six countries, with the largest return being 28 percent in the United States. Estimated returns tend to be largest for numeracy and literacy skills and smaller for problem-solving skills, although the relative importance of different skill dimensions varies across countries. Estimates prove highly robust to different earnings measures, additional controls, and various subgroups. Finally, exploiting the cross-country dimension of our analysis, we find that returns to skills are systematically lower in countries with higher union density, stricter employment protection, and larger public-sector shares.

The 22 countries in the comparison are: Austria, Belgium (albeit just Flanders), Canada, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Ireland, Italy, Japan, Korea, the Netherlands, Norway, Poland, the Slovak Republic, Spain, Sweden, the United Kingdom (specifically England and Northern Ireland), and the United States.

[HT: Greg Mankiw]