Where are the returns to skill highest?

by on December 23, 2013 at 2:21 pm in Data Source, Economics, Education | Permalink

Intriguingly, returns to skills are systematically lower in countries with higher union density, stricter employment protection, and larger public-sector shares.

That is from Eric A. Hanushek, Guido Schwerdt, Simon Wiederhold, and Ludger Woessmann, the NBER paper is here.  There is an ungated OECD version here.

1 ummm December 23, 2013 at 2:27 pm

this further validates America’s economic superiority, for one due to the flexibility of the labor market

2 ummm December 23, 2013 at 2:31 pm
3 Doug December 23, 2013 at 5:28 pm

I’d like to see Switzerland, Singapore or Liechtenstein on that productivity graph.

4 Plamus December 24, 2013 at 10:53 am

But not Piedmont, South Dakota?

5 Tom December 23, 2013 at 2:43 pm

No more bitcoin updates?

6 ummm December 23, 2013 at 2:45 pm

FB and LNKD stock up a lot ..made good $ with those

7 TallDave December 23, 2013 at 11:23 pm

It’s funny that they keep getting lost. I wish I’d learned more about them earlier and bought some, the white paper is fascinating.

This made me laugh — http://www.amazon.com/999-Fine-Copper-Bitcoin-Commemorative/dp/B00DEY7JYO/ref=sr_1_2?ie=UTF8&qid=1387858961&sr=8-2&keywords=bit+coin

8 FC December 23, 2013 at 2:47 pm


9 Careless December 24, 2013 at 5:34 pm

Yes, I can’t imagine why.

10 Brian December 23, 2013 at 2:52 pm

If they standardized the dependent variable I bet this would all go away. As is they’re certainly picking up differences in income inequality with the numeracy measure.

11 (Not That) Bill O'Reilly December 23, 2013 at 3:13 pm

Why would this be “intriguing” rather than “predictably obvious.” Each of the practices they note is designed to increase returns to comparatively unskilled labor,* so it stands to reason that their prevalence would lower the relative returns of skilled labor. What would be more useful to note would be whether it does that by increasing the denominator or reducing the numerator (or some combination of both).

*Public-sector hiring, unlike unionization and employment protections, isn’t theoretically designed to increase returns to the comparatively unskilled, so its a bit different, but in practice it seems to serve the same end.

12 mike December 23, 2013 at 3:19 pm

Public sector hiring also tends to increase returns to “skills” that nobody really values except the government (e.g. having a phd in economics)

13 ummm December 23, 2013 at 3:50 pm

lol that was a ding at economists

14 Curt F. December 23, 2013 at 3:56 pm

Merry Christmas to you too! Who do you think makes more money, the Chief Economist at JP Mogan or our erstwhile blog host Tyler Cowen?

15 prior_approval December 23, 2013 at 11:12 pm


Have the purges started?

16 Willitts December 23, 2013 at 5:21 pm

Economics is one of the leading degrees for law school applications. Economics majors fare well in businesses, accounting firms, financial services, and other professional fields. Apparently someone besides government values the degree, and thus, the people who teach it.

17 DCBillS December 23, 2013 at 8:31 pm

Agree 100%. Further, is anything about these outcomes “good” or “bad?.” It would seem to depend on your point of view making the whole matter an exercise in subjectivity.

18 mike December 23, 2013 at 3:16 pm

I would like to see some straight data on whether this is caused by lower “skilled” workers having higher wages or by higher “skilled” workers having lower wages.

19 Axa December 23, 2013 at 5:20 pm

OECD average annual wages for 2012.


Norway “pays” only 13% for you numeracy skills from an average wage 80,045 USD PPPs, that’s 10,405 USD PPPs. US “pays” a 28% prize on one-standard deviation increase in numeracy skills, from 55,048 average wage the result is 15,413 USD PPPs. If you add the prize to the average wage results are 90,450 and 70,461 USD PPPs respectively.

This dirty estimate is before taxes, the whole picture is blurry but some things are clear. One of them: people is not making a line to move to Spain even if the wage increase for people with one-standard deviation above average numeracy is 23%.

20 Ray Lopez December 23, 2013 at 9:51 pm

Yes, I thought about something like this and also that the union/public sector ding is only one paragraph in the whole paper, so not really the focus of the paper. As another posters said above, it could be just a by-product of the other factors (since anybody who works in government usually is somewhat illiterate or innumerate or comes from a poor family, on average).

As for moving to Spain, a lot of people do that, but after they made their fortune in America, since America is where the streets are comparatively paved with gold for working people, as you imply.

21 Sean Brown December 24, 2013 at 12:25 pm

You forgot to mention that Norway is a small semi-oil state (pop 5m, less than 2% of the U.S.) and that PPP is not adjusted downward nearly enough for true comparative pricing levels throughout the economy.

22 prior_approval December 23, 2013 at 11:10 pm

‘returns to skills are systematically lower in countries with higher union density, stricter employment protection, and larger public-sector shares’

And not only that, those countries have systematically lower health care costs, with essentially everyone being covered, regardless of their skills.

23 TallDave December 23, 2013 at 11:18 pm

Because they do less healthcare. This is like noting that China has systematically lower food costs, and hardly anyone starves to death.

24 prior_approval December 24, 2013 at 2:11 am

Which is an actual step up from the China of 30 years ago.

Anybody honestly willing to argue that America’s health care system has vastly improved in the last 30 years? Or that those universal health care countries have significantly worse health care than 30 years ago?

Because at the best satirical web site on the web, I’m sure that there are those willing to be laughed at by arguing exactly that.

25 TallDave December 25, 2013 at 10:45 pm

Chinese people can afford more food because the government no longer runs as much of the economy.


26 TallDave December 23, 2013 at 11:16 pm

It’s interesting that this tends to happen. In theory unions don’t have to be antiproductive, and I would bet you would find some polities produce much better unions than others.

27 Rimfax December 23, 2013 at 11:35 pm

I wasn’t able to grasp whether or not they accounted for the low return countries having higher starting income (for those able to get jobs). It seems that the return was calculated as a percentage increase in income. A lower rate of increase doesn’t mean much if the final income is essentially the same. Can you get high-confidence buying power or standard of living comparisons between veteran professionals in Norway and Germany? (The point above about government freebies would seem to apply in this comparison.)

It still says something about the incentives in those countries, but that would be a completely different study.

28 Alex Usher December 23, 2013 at 11:53 pm

Higher education policy more or less lines up here. Countries on the left of the graph on page 34 tend to have tuition fees, countries on the right tend not to have them.

29 TR W December 24, 2013 at 1:04 am

The study is bogus. Sure you can look across the globe to find people with the skills you want right now and call that efficient but what about the people who are born in the country? When people see you select foreigners for jobs they self-select by avoiding those jobs. The study doesn’t look outside the office and see how the constant upheaval of demographic change affects a population’s everyday efficiency. Americans need to relearn that CEOs’ salaries and company profits are not how you measure societal health.

30 radical white blogger December 24, 2013 at 3:53 am

oh, lookee, another neoliberal “study” from CorpGovMediaAcademia. If CorpGovMediaAcademia aint demonizing unions or white folks, they are idolizing nonwhites or immigration.

Some day, some day, people are going to catch on to their lying, scamming game. As for myself, I don’t trust any studies or stats from the mainstream societal institutions. Fruit of the poisoned tree, to coin a phrase….

31 radical white blogger December 24, 2013 at 4:31 am

ya ever notice that these studies that get promoted to the top of the media are always oriented around the ideas of work, productivity, spending, etc?

You would never see a study like these studies: 1) a study that quantifies how well the government represents the majority (it would seem an important concept, but you will never see that study); 2) a study quantifying how countries compare on leisure time (well, there might be such a study, but the mainstream media and certain blogs would never promote such a study); 3) a study quantifying how mass immigration degrades quality of life; 4) a study on which nations are set up best to allow its citizens to get the most return on the least amount of work.

These studies are always from the point of view, the interests of the owners, the investor, etc.

32 DK December 24, 2013 at 1:56 pm

“Intriguingly”? Are economists stupid or some only pretend to be? This is axiomatic for everyone else.

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