Does Perseverance Pay as Much as Being Smart?: The Returns to Cognitive and Non-cognitive Skills in urban Peru 1

TLDR: In this paper, the returns to cognitive and socio-emotional (non-cognitive) skills in a developing country setting using a recent labor force survey of the working-age (14-50) urban population in Peru designed to measure cognitive skills (Peabody Picture Vocabulary, verbal fluency, working memory, and numeracy/problem-solving) and personality traits to proxy for socioemotional skills (Big-five factors; Grit - Duckworth et al 2009).

Abstract: This paper estimates the returns to cognitive and socio-emotional (“non-cognitive”) skills in a developing country setting using a recent labor force survey of the working-age (14-50) urban population in Peru designed to measure cognitive skills (Peabody Picture Vocabulary, verbal fluency, working memory, and numeracy/problem-solving) and personality traits to proxy for socio-emotional skills (Big-five Factors; Grit - Duckworth et al 2009), and also collects data on some instrumental variables as skills are measured contemporaneously to schooling and earnings. We corroborate findings from developed countries that both types of skills are important correlates of earnings. After correcting for the potential endogeneity of measured skills vis-a-vis schooling, the findings confirm that both socio-emotional and cognitive skills are equally valued in the Peruvian labor market. A one standard deviation change in an overall cognitive skill measure and in the perseverance facet of Grit each generates a 9% increase on average earnings, conditional on schooling. The effect size of an increase in years of schooling (about 3 years) is a 15% increase in earnings, conditional on skills. The returns to other socio-emotional skills vary across dimensions of personality: 5% higher earnings for emotional stability while 8% lower earnings for agreeableness.