Returns to Skills Around the World

Existing estimates of the labor-market returns to human capital give a distorted picture of the role of skillsacross different economies. International comparisons of earnings analyses rely almost exclusively onschool attainment measures of human capital, and evidence incorporating direct measures of cognitiveskills is mostly restricted to early-career workers in the United States. Analysis of the new PIAAC surveyof adult skills over the full lifecycle in 22 countries shows that the focus on early-career earnings leads tounderestimating the lifetime returns to skills by about one quarter. On average, a one-standard-deviationincrease in numeracy skills is associated with an 18 percent wage increase among prime-age workers. Butthis masks considerable heterogeneity across countries. Eight countries, including all Nordic countries,have returns between 12 and 15 percent, while six are above 21 percent with the largest return being28 percent in the United States. Estimates are remarkably robust to different earnings and skill measures,additional controls, and various subgroups. Intriguingly, returns to skills are systematically lower incountries with higher union density, stricter employment protection, and larger public-sector shares.