The role of improved schooling, a central part of most development strategies, has become controversial because expansion of school attainment has not guaranteed improved economic conditions. This paper reviews the role of cognitive skills in promoting economic well-being, with a particular focus on the role of school quality and quantity. It concludes that there is strong evidence that the cognitive skills of the population – rather than mere school attainment – are powerfully related to individual earnings, to the distribution of income, and to economic growth. New empirical results show the importance of both minimal and high level skills, the complementarity of skills and quality of economic institutions, and robustness of the relationship between skills and growth. International comparisons incorporating expanded data on cognitive skills reveal much larger skill deficits in developing countries than generally derived from just school enrollment and attainment. The magnitude of change needed makes clear that closing the economic gap with developed countries will require major structural changes in schooling institutions.

The role of cognitive skills in economic development

This paper presents economic models of child development that capture the essence of recent findings
from the empirical literature on skill formation. The goal of this essay is to provide a theoretical framework
for interpreting the evidence from a vast empirical literature, for guiding the next generation of empirical
studies, and for formulating policy. Central to our analysis is the concept that childhood has more than one
stage. We formalize the concepts of self-productivity and complementarity of human capital investments
and use them to explain the evidence on skill formation. Together, they explain why skill begets skill
through a multiplier process. Skill formation is a life cycle process. It starts in the womb and goes on
throughout life. Families play a role in this process that is far more important than the role of schools.
There are multiple skills and multiple abilities that are important for adult success. Abilities are both
inherited and created, and the traditional debate about nature versus nurture is scientiÞcally obsolete.
Human capital investment exhibits both self-productivity and complementarity. Skill attainment at one
stage of the life cycle raises skill attainment at later stages of the life cycle (self-productivity). Early
investment facilitates the productivity of later investment (complementarity). Early investments are not
productive if they are not followed up by later investments (another aspect of complementarity). This
complementarity explains why there is no equity-efficiency trade-off for early investment. The returns to
investing early in the life cycle are high. Remediation of inadequate early investments is difficult and very
costly as a consequence of both self-productivity and complementarity.

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Interpreting the evidence on life cycle skill formation

Research on divorce during the past decade has focused on a range of topics, including the predictors of divorce, associations between divorce and the well-being of children and former spouses, and interventions for divorcing couples. Methodological advances during the past decade include a greater reliance on nationally representative longitudinal samples, genetically informed designs, and statistical models that control for time-invariant sources of unobserved heterogeneity. Emerging perspectives, such as a focus on the number of family transitions rather than on divorce as a single event, are promising. Nevertheless, gaps remain in the research literature, and the review concludes with suggestions for new studies.

Research on Divorce: Continuing Trends and New Developments

The role of improved schooling, a central part of most development strategies, has become controversial because expansion of school attainment has not guaranteed improved economic conditions. This paper reviews the role of cognitive skills in pro- moting economic well-being, with a particular focus on the role of school quality and quantity. It concludes that there is strong evidence that the cognitive skills of the population—rather than mere school attainment—are powerfully related to indi- vidual earnings, to the distribution of income, and to economic growth. New empiri- cal results show the importance of both minimal and high level skills, the comple- mentarity of skills and the quality of economic institutions, and the robustness of the relationship between skills and growth. International comparisons incorporating expanded data on cognitive skills reveal much larger skill deficits in developing coun - tries than generally derived from just school enrollment and attainment. The mag- nitude of change needed makes clear that closing the economic gap with developed countries will require major structural changes in schooling institutions.

/pdf/the-role-of-cognitive-skills-in-economic-development-4mrvfvvdzy.pdf

The Role of Cognitive Skills in Economic Development

Using Panel Study of Income Dynamics (PSID) microdata over the 1980-2010 period, we provide new empirical evidence on the extent of and trends in the gender wage gap, which declined considerably during this time. By 2010, conventional human capital variables taken together explained little of the gender wage gap, while gender differences in occupation and industry continued to be important. Moreover, the gender pay gap declined much more slowly at the top of the wage distribution than at the middle or bottom and by 2010 was noticeably higher at the top. We then survey the literature to identify what has been learned about the explanations for the gap. We conclude that many of the traditional explanations continue to have salience. Although human-capital factors are now relatively unimportant in the aggregate, women's work force interruptions and shorter hours remain significant in high-skilled occupations, possibly due to compensating differentials. Gender differences in occupations and industries, as well as differences in gender roles and the gender division of labor remain important, and research based on experimental evidence strongly suggests that discrimination cannot be discounted. Psychological attributes or noncognitive skills comprise one of the newer explanations for gender differences in outcomes. Our effort to assess the quantitative evidence on the importance of these factors suggests that they account for a small to moderate portion of the gender pay gap, considerably smaller than, say, occupation and industry effects, though they appear to modestly contribute to these differences.

/pdf/the-gender-wage-gap-extent-trends-and-explanations-3m2c5a7dft.pdf

The Gender Wage Gap: Extent, Trends, and Explanations

We provide a test for statistical discrimination or rational stereotyping in in environments in which agents learn over time. Our application is to the labor market. If profit maximizing firms have limited information about the general productivity of new workers, they may choose to use easily observable characteristics such as years of education to 'statistically discriminate' among workers. As firms acquire more information about a worker, pay will become more dependent on actual productivity and less dependent on easily observable characteristics or credentials that predict productivity. Consider a wage equation that contains both the interaction between experience and a hard to observe variable that is positively related to productivity and the interaction between experience and a variable that firms can easily observe, such as years of education. We show that the wage coefficient on the unobservable productivity variable should rise with time in the labor market and the wage coefficient on education should fall. We investigate this proposition using panel data on education, the AFQT test, father's education, and wages for young men and their siblings from NLSY. We also examine the empirical implications of statistical discrimination on the basis of race. Our results support the hypothesis of statistical discrimination, although they are inconsistent with the hypothesis that firms fully utilize the information in race. Our analysis has wide implications for the analysis of the determinants of wage growth and productivity and the analysis of statistical discrimination in the labor market and elsewhere.(This abstract was borrowed from another version of this item.)

Employer Learning and Statistical Discrimination

We show that if firms statistically discriminate among young workers on the basis of easily observable characteristics such as education, then as firms learn about productivity, the coefficients on the easily observed variables should fall, and the coefficients on hard-to-observe correlates of productivity should rise. We find support for this proposition using NLSY79 data on education, the AFQT test, father's education, and wages for young men and their siblings. We find little evidence for statistical discrimination in wages on the basis of race. Our analysis has a wide range of applications in the labor market and elsewhere.

/pdf/employer-learning-and-statistical-discrimination-3e67s1za8e.pdf

We investigated the sensitivity of measures of cognitive ability and socioemotional development to changes in parents' marital status using data from the National Longitudinal Survey of Youth, 1979. We used several scores for each assessment, taken at different times relative to parents' marital transitions, which allowed us to trace the effects starting up to five years before a parent's change in marital status and continuing for up to six years afterward. It also allowed us to correct for the unobserved heterogeneity of the transition and nontransition samples by controlling for the child's fixed effect in estimating the time path of his or her response to the transition. We found that children from families with both biological parents scored significantly better on the BPI and the PIAT-math and PIAT-reading assessments than did children from nonintact families. However, much of the difference disappeared when we controlled for background variables. Furthermore, when we controlled for child fixed effects, we did not find significant longitudinal variation in these scores over long periods that encompass the marital transition. This finding suggests that most of the variation is due to cross-sectional differences and is not a result of marital transitions per se.

/pdf/the-impact-of-family-structure-transitions-on-youth-zxnvyysr6k.pdf

The impact of family structure transitions on youth achievement: evidence from the children of the NLSY79.

We provide a test for statistical discrimination or rational stereotyping in in environments in which agents learn over time. Our application is to the labor market. If profit maximizing firms have limited information about the general productivity of new workers, they may choose to use easily observable characteristics such as years of education to 'statistically discriminate' among workers. As firms acquire more information about a worker, pay will become more dependent on actual productivity and less dependent on easily observable characteristics or credentials that predict productivity. Consider a wage equation that contains both the interaction between experience and a hard to observe variable that is positively related to productivity and the interaction between experience and a variable that firms can easily observe, such as years of education. We show that the wage coefficient on the unobservable productivity variable should rise with time in the labor market and the wage coefficient on education should fall. We investigate this proposition using panel data on education, the AFQT test, father's education, and wages for young men and their siblings from NLSY. We also examine the empirical implications of statistical discrimination on the basis of race. Our results support the hypothesis of statistical discrimination, although they are inconsistent with the hypothesis that firms fully utilize the information in race. Our analysis has wide implications for the analysis of the determinants of wage growth and productivity and the analysis of statistical discrimination in the labor market and elsewhere.

If profit maximizing firms have limited information about the general productivity of new workers, they may choose to use easily observable characteristics such as years of education to 'statistically discriminate' among workers. The pure credential value of education will depend on how quickly firms learn. To obtain information on employer learning, we work with a wage equation that contains both the interaction between experience and a hard-to-observe variable that is positively related to productivity and the interaction between experience and a variable that firms can easily observe, such as years of education. The time path of the coefficient on the unobservable productivity variable provides information about the rate at which employers learn about worker productivity. Using data from the NLSY we obtain preliminary estimates of the rate at which employers learn about worker quality and use these, along with some strong auxiliary assumptions, to explore the empirical relevance of the educational screening hypothesis. We show that even if employers learn relatively slowly about the productivity of new workers, the portion of the return to education that could reflect signaling of ability is limited.

/pdf/employer-learning-and-the-signaling-value-of-education-6yqdcqxu8q.pdf

Charles R. Pierret

Papers

Employer Learning and Statistical Discrimination

Employer Learning and Statistical Discrimination

The impact of family structure transitions on youth achievement: evidence from the children of the NLSY79.

Employer Learning and Statistical Discrimination

Employer Learning and the Signaling Value of Education. National Longitudinal Surveys Discussion Paper.