Education, cognitive skills and earnings in comparative perspective

Abstract

This article investigates to what extent education is rewarded on the labour market because of the cognitive skills it indicates, using IALS data for the US, the UK, Germany and the Netherlands. By empirically distinguishing between general cognitive ability and work-specific cognitive ability, the article shows that the cognitive component of schooling is larger than anticipated by Bowles and Gintis. Instead of around 20 percent of the education effect being cognitive, the results indicate that between 32 and 63 percent of the education effect is cognitive, depending on the country and operationalization of cognitive skills. Moreover, it was shown that the relative importance of general vs work-specific cognitive abilities varies systematically between countries, with a larger fraction of the schooling effect being captured by the work-specific component in Germany and the Netherlands than in the US and the UK. This is explained by the different role of schooling between countries. Importantly, controlling for allocative processes related to the industry, organization and occupation of employment was particularly relevant in Germany, which supports the notion that this country is most credentialized.

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