The Evolution of Returns to Cognitive Skills Across Countries: Evidence on Factor Price Equalization
Globalization and technological change are constantly changing the demand for skills in national economies. We estimate how returns to cognitive skills have evolved over the past decade in 23 developed countries, finding strong convergence consistent with factor price equalization. The psychometrically linked PIAAC surveys of adult skills in 2012 and 2023 allow consistent international comparisons of skill returns over time. On average across countries, earnings increase by 16.7 percent per standard deviation in numeracy skills in 2023, a decline from 20.3 in 2012. These estimates of returns to cognitive skills are hardly affected by conditioning on non- cognitive skills. But there is substantial cross-country heterogeneity with one third of countries seeing increased returns. Strikingly, much of the cross-country variation in the change in skill returns can be accounted for by convergence, whereas other factors including technological change do not contribute. Consistent with mechanisms of factor price equalization, the speed of convergence is faster in countries with more labor-market flexibility and openness to trade, especially in intangibles.To read the slides, click the following link
https://www.hoover.org/sites/default/files/2026-04/piaac%20evolution%20260317.pptx
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