Date of Degree
employability, earnings, cognitive skills, literacy, numeracy, problem solving in technology-rich environments
People’s stock of knowledge, abilities, and other personal characteristics, namely human capital, has been widely regarded as a fundamental input to both individuals' ability to earn a living and to fuel economic growth. Traditionally, formal education has been widely considered as a good investment in human capital and an extensive literature has shown that it has a positive and strong association with labor market success. However, considering the global knowledge economy, which emphasizes skills and knowledge, the economic benefits of formal education are being questioned, as findings from recent research reviews revealed that the overall rate of return to education had been gradually declining since the 1950s globally. On the contrary, cognitive skills are identified as key predictors of an individual’s productivity and have been demonstrated being strongly and robustly related to labor market benefits based on abundant previous studies. Meanwhile, the increased importance of human capital and rising recognition of the roles of cognitive skills in labor market have led to the development of more elaborately designed large-scale international surveys focusing on directly assessing fundamental cognitive skills, and the comprehensive and rich data collected from the surveys has provided a great opportunity to conduct broader, more thorough, and reliable policy-related analyses.
This dissertation was designed to estimate the effects or payoffs of formal education and three directly-measured fundamental cognitive skills - literacy, numeracy, and problem solving in technology-rich environments (PSTRE) on employability and earnings of labor-market entrants (25 to 34 years old individuals) through analyzing the most up-to-date worldwide data collected from PIAAC survey of adult skills across 35 countries between 2011 and 2018, while controlling for a series of critical individual and country-level factors, such as gender, the highest achieved level of formal education, actual work experience, job-related training, GDP per capita, poverty rate, high-school or college completion rates, mobile phone and internet usage. The dissertation further examined any potential heterogenous or interaction effects of education and these three cognitive skills across population subgroups, especially the gender groups, and STEM versus non-STEM study areas. The main findings were summarized as follows:
1) With respect to employability, overall, the proficiencies in literacy and numeracy had significant positive effects on employability for labor-market entrants aged 25 to 34 years old. Given other conditions were the same, on average the odds of being employed would increase by 11.2% for each one standard deviation increase in combined literacy and numeracy skill score; In contrast, the proficiency in PSTRE skill was not significantly associated with the probability of employment. Additionally, the effects of these three cognitive skills on employability varied widely across countries. For example, better proficiencies in cognitive skills would result in better employment opportunities in countries like United Kingdom and Norway, while in some other countries (i.e., Chile, Peru, etc.) cognitive skills did not seem to have any effects on boosting individuals’ chances of securing a job.
2) With respect to earnings, overall, all three cognitive skills have demonstrated statistically significant positive associations with earnings of labor market entrants. Given other conditions being the same, on average an individual’s hourly pay rate would be increased by 8.2% for each one standard deviation rise in combined literacy and numeracy skill score or increased by 6.0% for every one-standard-deviation increase in PSTRE skill score. Similarly, their effects on individual’s earnings varied greatly across countries.
3) Formal education, or the highest level of achieved educational attainment, was found to be positively associated with both employability and earnings for labor market entrants. However, only individuals with a bachelor’s degree or beyond would be able to enjoy significantly better employment opportunities and/or receive significantly higher earnings compared to their peers who did not finish high school; on average their odds of being employed would increase by 70.2% or 55.7%, and their hourly wages would be higher by 22.3% or 22.0%, when considering literacy and numeracy skills or the proficiency in PSTRE skill, respectively. Meanwhile, individuals with high-school or equivalent education, or who received some college education, did not seem to have an advantage in employability or earnings compared to their counterparts who did not finish high school. This finding indicated that Spence’s job-market signaling theory still applied, where the educational attainment level serves as a credential for employees and provides a signal for employers to efficiently differentiate or screen between high- and low-productivity employees, therefore, more-educated workers tend to have a better chance to be employed and/or receive a higher pay. Further, this finding also provided empirical evidence that formal schooling, especially higher education, remained a beneficial factor in forming human capital and likely a good investment for individuals.
4) Applying the standard Mincer earnings equation to the sampled data, this dissertation found that one additional year of formal schooling would result in a 9.1% increase in individual's hourly wage. This overall rate of return matched findings from previous literature, and further provided new empirical evidence for supporting the continuous robustness of the classic Mincer earnings model.
5) As for population subgroups, this dissertation found that male workers overall enjoyed better employment opportunities and received higher earnings than their female counterparts; on average, their odds of being employed would increase by 45.6%, and their hourly pay rates would be higher by 12.0% or 13.4%, when literacy and numeracy skills or the PSTRE skill were controlled, respectively. Moreover, the effects of gender on employability and earnings varied widely across countries, for instance, a male worker in Peru would have 1.5 times higher odds to be employed, and receive a higher hourly pay by 40% in Estonia. This finding indicated that gender hiring inequality and gender income inequality remained as general issues.
6) Another set of population subgroups this dissertation aimed to explore was the field of study area (STEM vs. non-STEM) because the STEM (science, technology, engineering, and mathematics) labor force has become a popular topic in discussion of the job market. Overall, this dissertation found that the field of study area had mixed effects on employability and demonstrated merely a weak non-significant positive association with earnings for labor market entrants. Specifically, when PSTRE skill was controlled, individuals with a STEM background tended to enjoy significantly better job opportunities than their non-STEM background counterparts, on average their odds of being employed would increase by 12.6%; While when literacy and numeracy skills were analyzed, studying a STEM field did not have any significant effects on increasing an individual’s probability of employment. Albeit the overall effects on earnings were non-significant, the findings did show studying in a STEM field would result in various monetary returns across countries, for instance, workers with a STEM background in Chile could receive higher hourly wages by more than 13%, while in countries like Ecuador or Greece, STEM or non-STEM background did not quite make a difference on earnings.
Zhao, Yongchao, "The Effects of Education and Cognitive Skills on Employability and Earnings for Labor Market Entrants: Evidence from Large-scale Worldwide Survey Data" (2022). CUNY Academic Works.