Skills for Hire

As students all over the country depart from the cozy homes of their parents to go back to school a question with a seemingly obvious answer is asked - why? The start of a new semester signals a new beginning that entails learning and growth for another four months. The obvious answer to why so many young people do this every fall and winter is that school provides them with necessary skills in order to make a living in the world—a world that is becoming ever more competitive. However, little research has been done on exactly what return someone may receive for the skills they possess. The OECD published a recent paper taking a stab at this question.

The OECD essentially tried to find what the effects of skills on earnings is, which can also be referred to as returns-to-skills. The overall conclusion should surprise no one and that is the more skills a person has the more a person will earn. While this seems to be an uneventful finding, what is interesting is the discrepancy of returns-to-skills across countries. The United States is the clear leader when it comes to returns-to-skills. Countries that find themselves with the lowest returns-to-skills are Sweden, Norway, and Denmark.

The interesting thing that the paper found was the correlation of returns-to-skills with union participation and overall worker protection policies. Those countries near the bottom (Sweden, Norway, Denmark) are countries that are known for higher union participation rates and stricter employment protection laws than those countries near the top such as the United States or United Kingdom. While this finding may seem to outwardly promote the United States' general view that the more free a market is the more fair it is to those with skills, some wonder that this viewpoint may just allow highly skilled people to extract abnormally high returns. Whatever the result may be the new OECD report is sure to drive more research in the field of what kind of returns skills can command and in time a better picture will emerge.