Numeracy wins again

This week’s finding is from analysis of the PIAAC data.  Here is the money shot, 'On average, one standard-deviation increase in numeracy skill is associated with an 18% wage increase.'  That means you pop up two standard-deviations and you are suddenly earning a whole lot more.  

It doesn't prove that being better at numeracy means you will earn more. This is because numeracy skill correlates with other things such as socio-economic status, employment and health.  Also, you may very well learn the numeracy skills 'on the job', which would also explain much of the findings. However, it is very compelling.  No such findings were found for literacy.  

Note that the increase in wages are not as large in countries with denser union numbers. I guess this is because there is less opportunity to leverage your individual numeracy skills.  

Returns to Skills around the World: Evidence from PIAAC

Eric A. Hanushek, Guido Schwerdt, Simon Wiederhold, Ludger Woessmann

NBER Working Paper No. 19762
Issued in December 2013
NBER Program(s):   ED   LS   PE 

Existing estimates of the labor-market returns to human capital give a distorted picture of the role of skills across different economies. International comparisons of earnings analyses rely almost exclusively on school attainment measures of human capital, and evidence incorporating direct measures of cognitive skills is mostly restricted to early-career workers in the United States. Analysis of the new PIAAC survey of adult skills over the full lifecycle in 22 countries shows that the focus on early-career earnings leads to underestimating the lifetime returns to skills by about one quarter. On average, a one-standard- deviation increase in numeracy skills is associated with an 18 percent wage increase among prime-age workers. But this 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 being 28 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 in countries with higher union density, stricter employment protection, and larger public-sector shares.