Article

Cognitive Performance and Labour Market Outcomes

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  • Manhattan Institute for Policy Research
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Abstract

We use the U.S. National Longitudinal Survey of Youth 1979 and other sources to examine how cognitive performance near the end of secondary schooling relates to labour market outcomes through age fifty. Our preferred estimates control for individual and family backgrounds, non-cognitive attributes, and survey years. We find that returns to cognitive skills rise with age. Although estimated gains in lifetime incomes are close to those reported earlier, our preferred estimates make multiple offsetting improvements. Returns to cognitive skill are greater for blacks and Hispanics than for non-Hispanic whites, both in relative and absolute terms, with gains in work hours being more important than in hourly wages.

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... Altonji and Pierret (2001) argue that the returns to cognitive skills should rise as work experience grows, as employers are better able to judge the abilities of their employees over time. Indeed, using the National Longitudinal Survey of Youth, Lin et al. (2018) recently found that associations between general cognitive ability (IQ) and earnings increased over the span of participants' careers. However, these findings may not translate to more narrowly defined achievement skills, as other work has shown that intervention-spurred changes in mathematics skills may not lead to changes in general cognitive ability (Bailey et al., 2014;Watts et al., 2017). ...
... Second, most studies have not considered the independent contributions of mathematics and reading achievement to labor market success. Instead, studies examining achievement-to-earnings correlations have often used an aggregated measure of general cognitive ability (e.g., Heckman et al., 2006;Lin et al. 2018), or have ignored reading and language ability altogether (e.g., Currie & Thomas, 2001;Murnane et al., 2000). Such approaches make it difficult to project how programs that targeted only one academic domain might affect earnings (e.g., a mathematics or reading curriculum intervention) and leave questions regarding the differential 2 contribution of mathematics and reading skills to later economic attainment. ...
... When compared with previous studies reporting achievement-to-earnings correlations (e.g., Chetty et al., 2011;Currie & Thomas, 2001;Dougherty, 2003;Lin et al., 2018;Murnane et al., 2000;Neal & Johnson, 1996), the estimates reported here were often smaller. To ease comparisons, I present results in the appendix (see Supplementary Table A14) from several studies that estimated associations between math achievement and earnings. ...
Article
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The current article reexamines the correlation between achievement test scores and earnings by providing new evidence on the association between academic skills and measures of adult earnings assessed when participants were in their 30s, 40s, and 50s. Results suggest that math and reading scores are strong predictors of economic attainment throughout participants’ careers, but these associations may also be sensitive to controls for other characteristics—including measures of the early family environment, general cognitive functioning, and socioemotional skills. Although these associations demonstrate the likely importance of achievement skills in determining labor market productivity, the variability in the achievement-to-earnings correlation suggests that researchers should apply caution when using the correlation to project the long-run effects of educational interventions.
... How to convert these higher test scores into monetary benefits over the entire life course is one of the crucial steps in our cost-benefit analysis. Several studies, almost all based on U.S. data, have estimated the relation between test scores measured in childhood and adolescence and adult earnings ( Carneiro, Crawford, & Goodman, 2007;Chetty, Friedman, & Rockoff, 2014;Lin, Lutter, & Ruhm, 2016;Mulligan, 1999;Murnane, Willett, Duhaldeborde, & Tyler, 2000). As this type of longitudinal evidence is not available for Spain, we rely on evidence from the United States. ...
... Moreover, the estimated returns to skills depend on the age at which the earnings are measured (most studies focus on early career earnings). As evidence indicates that returns to skills increase over the life cycle ( Hanushek, Schwerdt, Wiederhold, & Woessmann, 2015;Lin et al., 2016), the results based on early career earnings may therefore substantially underestimate the relevance of skills for lifetime earnings (e.g., B€ ohlmark & Lindquist, 2006;Haider & Solon, 2006). These issues are important in our cost-benefit analysis as (changes in) lifetime earnings determine the preschool benefits. ...
... In our main analysis, we base our parameter on recent estimates from the National Longitudinal Survey of Youth 1979 (NLSY79). Lin et al. (2016) show for the United States that the Armed Forces Qualification Test (AFQT) score (a composite cognitive test score) measured between ages 16 and 23 predicts earnings several decades later, with stronger effects on earnings later in life. Conditional on background characteristics and noncognitive skills, a 1 SD increase in cognitive skills increases annual labor earnings by 17% (by age 28), 24% (by age 38), and 26% (by age 48). ...
Article
This study provides a cost–benefit analysis of expanding access to universal preschool education, focusing on a Spanish reform that lowered the age of eligibility for publicly provided universal preschool from age 4 to age 3. Benefits in terms of child development and maternal employment are estimated using evidence on the causal effects of this reform. In the baseline estimation the benefit–cost ratio is over 4, indicating sizeable net societal benefits of the preschool investment. The results show that the child development effects are the major determinant of the cost–benefit ratio; the employment gains for parents appear to play a relatively minor role. Overall, the cost–benefit analysis provides support for investing in high-quality preschool education.
... However, these estimates may understate the association of cognitive ability with earnings in contemporary, representative U.S. samples. The WLS cohort excluded non-graduates and females and had very few nonwhite participants, i.e., groups that have higher returns to cognitive ability [88,92]. ...
... More recently, Lin, Lutter, and Ruhm used data for the NLSY79 cohort followed from age 20 to age 50 with the 2006 renormed AFQT scores and reported results of a regression model that included controls for family background and three behavioral attributes; a retrospective assessment of sociability at age six, and adult self-assessments of locus of control and self-esteem [92]. The results indicated that a 0.1 SD difference in cognitive ability (equivalent to 1.5 IQ points) was associated with earnings differences of 2.0% at age 30, 2.7% at age 40, and 3.3% at age 50 (equivalent to 1.3%, 1.8%, and 2.2% differences in earnings per one-point difference in ability, respectively). ...
... Updated estimates for the U.S. population in 2016 projected an NPV at birth of market productivity of USD 934,583 assuming 1% annual growth in future real earnings, and USD 758,954 assuming 0.5% annual growth productivity, both using a 3% discount rate [62]. [92]. This is comparable to an estimate using the NPV of future lifetime earnings in 2016 in combination with a conservative assumption of a 1.0% difference in earnings per IQ point. ...
Article
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Cognitive ability in childhood is positively associated with economic productivity in adulthood. Expected gains in economic output from interventions that protect cognitive function can be incorporated in benefit–cost and cost-effectiveness analyses conducted from a societal perspective. This review summarizes estimates from high-income countries of the association of general cognitive ability, standardized as intelligence quotient (IQ), with annual and lifetime earnings among adults. Estimates of the association of adult earnings with cognitive ability assessed in childhood or adolescence vary from 0.5% to 2.5% per IQ point. That range reflects differences in data sources and analytic methods. We take a conservative published estimate of a 1.4% difference in market productivity per IQ point in the United States from a recent study that controlled for confounding by family background and behavioral attributes. Using that estimate and the present value of lifetime earnings calculated using a 3% discount rate, the implied lifetime monetary valuation of an IQ point in the United States is USD 10,600–13,100. Despite uncertainty and the exclusion of non-market productivity, incorporation of such estimates could lead to a fuller assessment of the benefits of public health and clinical interventions that protect the developing brains of fetuses, infants, and young children.
... We are grateful to the National Centre for Vocational Education Research (NCVER) and the Australian Data Archives for making these data available and to DET for their support and comments on earlier drafts. The findings and views reported in this paper are those of the authors and should not be attributed to DET, NCVER or Lin et al. (2016) estimated lifetime differences in earnings associated with numeracy and literacy levels in the United States measured at ages 16 to 23, a time when post-secondary education and initial employment may influence proficiency. As such, results from the Lin et al. (2016) study do not give a clear picture of post-school trajectories of students with low reading proficiency while in school. ...
... The findings and views reported in this paper are those of the authors and should not be attributed to DET, NCVER or Lin et al. (2016) estimated lifetime differences in earnings associated with numeracy and literacy levels in the United States measured at ages 16 to 23, a time when post-secondary education and initial employment may influence proficiency. As such, results from the Lin et al. (2016) study do not give a clear picture of post-school trajectories of students with low reading proficiency while in school. ...
Article
While illiterate adults are disadvantaged in the labour market, it is unclear whether low reading proficiency in school diminishes employment prospects in adulthood. We fill this gap using data on participants in the 2003 Program of International Student Assessment who were tracked to age 25 in the Longitudinal Survey of Australian Youth. We find no difference in full-time employment rates or earning capacity of jobs attained at age 25 associated with low reading proficiency at 15. Those with low reading proficiency are found to avoid negative effects through high rates of participation and positive outcomes from vocational education and training.
... For instance,Altonji and Pierret (2001),Cunha et al. (2011), andLin et al. (2018) find that returns to cognitive skills increase with age. ...
... The authors also adduced evidence that the effect of math skills on wages was partially mediated through Educational Attainment. A similar, but more extensive, study was conducted by Lin et al. (2016). Holzer and Lerman (2015) used PIAAC data for the United States to examine the relationships between Cognitive Skills (literacy, numeracy, problem solving in technology-rich environments [PS-TRE]) and labor market outcomes. ...
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Background Ongoing interest in the relationships between family background and adult outcomes is motivated by concerns regarding the intergenerational transmission of advantage/disadvantage. Currently all countries are far from achieving the ideal that all individuals, irrespective of their starting points or their demographic characteristics, are able to accumulate sufficient human capital so that they can achieve success in the workplace and fulfill their responsibilities as family members and as citizens. This study quantifies the length of the shadow cast by family background and personal characteristics on an individual’s prospects in the labor market. It also examines the extent to which these relationships are mediated by factors more proximal to labor market entry. Methods This study uses data for 21 OECD countries from the first round of PIAAC. It employs descriptive statistics, correlations and logistic regression. Two dichotomous variables are derived from each country’s national annual income distribution: Q1 = 1 if the individual’s income is in the first (lower) quartile and Q4 = 1 if the individual works full-time and whose income is in the fourth (upper) quartile. For each country, a nested sequence of logistic regression models are fit to ascertain the role of more proximal factors in mediating the impact of family background and demographic characteristics on these labor market outcomes. ResultsThe patterns of relationships are qualitatively similar across the 21 countries, although the estimated associations vary greatly in strength. Parental education accounts for substantial proportions of the variation in respondents’ Educational Attainment and Cognitive Skills. In most countries, children born to parents with lower levels of education have less than a fifty–fifty chance of exceeding that level. Family background is strongly associated with income, but the relationship is largely mediated by Educational Attainment and Cognitive Skills. Females and younger individuals have much higher odds of being in the lower quartile and much lower odds of reaching the upper quartile, even after adjusting for other variables. The magnitudes of these adjusted odds are concerning. Conclusions Family background and gender cast a long shadow on individuals’ life prospects. Countries vary greatly in their success in mitigating these disadvantages. Formulating effective policies will depend on understanding a complex set of dynamics that surely differ among countries.
... For example, in the early studies on human capital, cognitive-ability models were viewed a rival for human capital models in explaining earnings, ignoring non-cognitive traits entirely ( Becker, 1964;Cunha et al., 2006;Griliches, 1977 ). Recent empirical studies show that cognition has a positive relationship with labor market outcomes Lin et al., 2018;Lindqvist and Vestman, 2011 ). There is growing evidence that it is also related to behavioral anomalies such as impatience and anomalous preferences ( Benjamin et al., 2013;Dohmen et al., 2010 ). ...
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This paper examines the effects of cognitive abilities and non-cognitive skills on gambling behaviors in Australia. We use the scores for three cognitive functioning tasks as measures of cognitive abilities. Locus of control and the Big Five personality traits are used as measures of non-cognitive skills. We find that cognitive abilities affect both gambling participation and problem gambling. While locus of control does not affect people's participation in gambling, gambling participants with strong internal locus of control are less likely to become a problem gambler than those with external locus of control. We also show that personality traits are important factors for both gambling participation and problem gambling. There is also evidence that both cognitive and non-cognitive skills affect gamblers' choice between skill-and-chance gambling and pure-chance gambling. Our findings seem to support the view that market imperfection could at least explain some individuals' participation in gambling.
... It has inspired a vast amount of applications using different outcome variables as the evaluative space of labor market outcomes (see e.g. Lin, Lutter, & Ruhm (2018) for the US, Lindqvist & Vestman (2011) for Sweden and Brunello & Schlotter (2011) for a set of European countries). In this paper, we propose to use as the outcome of interest a latent work-related wellbeing variable that encompasses multiple aspects of a good job. ...
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Education, skills and labor market outcomes are tightly linked. Most empirical evidence about their interconnections is obtained using rich longitudinal datasets coming from developed countries, and often treat earnings as the sole outcome of interest. Much less is known about the same in developing countries due to lack of appropriate data. This paper is an attempt to fill this gap by operationalizing the technology of skill formation framework using a static dataset with some information on past variables. Following the theoretical underpinnings of modern development paradigms, we define our variable of interest to be a multidimensional concept of work-related well-being, going beyond wages to include employment opportunities, decent working time and safe work environment. We thus apply a suitably adapted version of the above framework, resulting in a simultaneous equation model with latent variables, to Bolivian data. We find that an above-average well-being in terms of employment opportunities and earnings is only observed in the top-most quintile of the skills distributions, whereas the top three quintiles are relatively well-off in the safe work dimension. Overwork is responsive to cognitive skills but not to non-cognitive skills, and it is highly prevalent across the entire distribution of the former. These two types of skills are also differently influenced by education. An individual with a primary schooling is already in the above-average group in terms of non-cognitive skills, a condition requiring an undergraduate college degree in the case of cognitive skills. From a policy perspective, we note that, contrary to the general findings in a developed country context, the premium for cognitive skills on the labor market is higher than that for non-cognitive skills. This can be explained by the relative scarcity of the former, which is mostly acquired through formal education, a situation often encountered in many developing countries.
... Although prior research demonstrates that earnings differentials relate to education (e.g., Connolly and Gottschalk 2006) and cognitive skills (e.g., Hanushek et al. 2015), as well as skill-based activities at work (e.g., Liu and Grusky 2013), the majority of this research relies on cross-sectional data and does not generate insight into how all three aspects relate to earnings mobility. While it is unknown if all three aspects of human capital facilitate access to higher earnings through mobility, prior research indicates that the earnings returns to cognitive skills increase with age (Lin et al. 2018) or time spend in a job, for example, when employers learn more about the skills of their workers (Altonji and Pierret 2001). Education level is also associated with career progression, often through occupational sorting (Manzoni et al. 2014) and job mobility (Becker and Blossfeld 2017). ...
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It is well-established that human capital contributes to unequal levels of earnings mobility. Individuals with higher levels of human capital, typically measured through education, earn more on average and are privy to greater levels of upward change over time. Nevertheless, other factors may have an incremental effect over education, namely cognitive ability and the skill demands of employment. To deepen insight into whether these aspects contribute to earnings mobility over a four-year period, the present study examines positional change in Canada and Germany—two contexts typified as examples of liberal and coordinated market economies. A series of descriptive indices and relative change models assess how different measures of human capital are associated with earnings mobility. The results indicate that, while individuals with higher cognitive skills experience greater earnings stability and upward mobility in both countries, there is only an incremental effect of skills on mobility in Germany once we account for educational credentials. The results also provide evidence on the role of skill demands for earnings mobility; in both countries, advanced skills at work are associated with greater short-term mobility, even while controlling for cognitive ability and other factors. Together the results showcase how longitudinal data containing detailed measures of human capital allow for deeper insight into what facilitates earnings mobility.
... Fair and rational feedback may stimulate employee performance, and the process will lead to behavioral change if the employee willingly accepts the performance appraisal feedback. In suggesting the key feedback and labor market variables, we follow others (Levitt et al. (2016);Lin et al. (2018)); namely, we select (see also Table 3): (X 7 ) Qualification: "My qualification suits my job". (X 8 ) Appraisal: "I get praise for doing a good job". ...
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Our paper examines the impact of training outputs and employment factors on several facets of employee performance while supporting managerial decision-making in the banking sector. First, we introduce four performance measures in individual productivity assessment. Second, three identified groups of covariates are associated with these measures, namely, the training method success, delivery of knowledge, and labor market performance feedback. Based on our empirical results from Germany, we suggest that response-related decisions are accompanying bank employees’ profiles and appraisal. In particular, we form decision-making functions and finally show that the banking industry successfully balances between internal and external factors in optimizing employees’ performance.
... Of these three capabilities, the role of non-cognitive skills in determining later-life outcomes has been the least explored. Child health and cognition have long been recognised as important predictors of outcomes, such as test scores (Broman et al., 1975;Edwards and Grossman, 1979;Shakotko et al., 1981;Berkowitz and Stern, 2018), educational attainment (Wolfe, 1985;Rohde and Thompson, 2007;Grossman, 2010), labour market outcomes (Contoyannis and Dooley, 2010;Lin et al., 2016) and health (DeFries et al., 2009;Wang et al., 2018). ...
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Several studies have established associations between early-life non-cognitive skills and later-life health and health behaviours. However, no study addresses the more important policy concern about how this relationship varies along the health distribution. We use unconditional quantile regression to analyse the effects of adolescent non-cognitive skills across the distributions of the health-related quality of life at age 50 and biomarkers at age 45 years. We examine the effects of measures of conscientiousness, agreeableness and neuroticism recorded at age 16 for 3585 individuals from the National Child Development Study. Adolescent conscientiousness is positively associated with ability to cope with stress and negatively associated with risk of cardiovascular disease in middle-age. Adolescent agreeableness is associated with higher health-related quality of life and lower physiological ‘wear and tear’, but negatively associated with ability to cope with stress in middle-age. Adolescent neuroticism is associated with lower health-related quality of life, higher physiological ‘wear and tear’, and a higher risk of cardiovascular disease in middle-age. All of these associations are stronger at the lower end of the health distribution except for the cardiovascular risk biomarkers. These associations are robust to correcting for attrition using inverse probability weighting and consistent with causal bounds assuming proportional selection on observables and unobservables. They suggest policies that improve non-cognitive skills in adolescence could offer most long-term health benefit to those with the poorest health.
... In the LMIC study, the cognitive score increases by one standard deviation, salary Would increase by 4.5%. Ozawa and others also pointed out that improving cognition is the key to improving economic returns, especially in low-income countries [11]. Lin et al. pointed out that a high level of cognitive ability can also increase the expected average lifetime income [12]. ...
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This article uses the 2018 Chinese Family Tracking Survey data to empirically analyze the impact of mental health on family income and explore the mediating role of cognitive ability. The results show that for every 1% reduction in the family's mental unhealthy degree measured by the CES-D8 score, the family income level will increase by 1.7%-1.9%. After adding the pre-determined explanatory variable 2016 mental state level and other operations, use the filtered loneliness As an instrumental variable, the same conclusion was obtained by performing 2-stage least squares; the results of indirect calculation show that the mediating effect of cognitive ability is about 16.96% of the total effect of mental health affecting family income level; in terms of heterogeneity analysis, Researched that the impact of mental health problems at different family income levels is different. The marginal effect of the mental health impact of low-income families is as high as -2.9%. The mental health status of the family finance chief has a significant impact on the income of the entire family , Especially low-income families.
... The evolution of the returns to human capital in Canada, 1980-2005 (1) 5. Il n'est pas étonnant que le taux de diplomation soit plus élevé pour HEC, sachant que cette université offre en grande partie des programmes d'études d'une durée de trois ans. (Murnane et al., 2000 ;Rose et Betts, 2004 ;Lin et al., 2018 ;Wolcott, 2018). En revanche, les analyses portant sur des données canadiennes sont plus rares et moins récentes (Charette et Meng, 1998 ;Green et Riddell, 2001 ;Finnie et Meng, 2006). ...
... There is ample evidence that child cognitive ability is an important predictor of labour market outcomes, including earnings, occupation, work experience and youth unemployment [321][322][323][324][325] . ...
... Poor educational attainment and cognitive functioning can be linked to outcomes such as fewer labour market opportunities, lower wages, and ultimately income poverty (Awaworyi Churchill & Mishra, 2018;Barrett, 2012;Kingdon & Unni, 2001;Lin et al., 2018), which is associated with energy poverty (Okushima, 2016). Poorer educated individuals may also be less likely to switch to another supplier or negotiate with their own supplier; hence, paying higher energy prices. ...
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... There is ample evidence that child cognitive ability is an important predictor of labour market outcomes, including earnings, occupation, work experience and youth unemployment [321][322][323][324][325] . ...
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