Labour Productivity and Skills
Lead Research Organisation:
Lancaster University
Department Name: Economics
Abstract
Labour productivity is 0/L, where Q is output and L is the labour input - an input that has both a quantity dimension (man hours) and a quality dimension (skills). Human capital contributes to the skills of workers and is widely recognised to be the primary driver of Lin developed countries. This is reflected in labour productivity, and thence real wages. It is a widely-held view that Britain needs to increase the skills of the workforce, and ensure that they are better matched to employers' needs, to address the "skills gap". While the dominant proxy for productivity in the literature remains (hourly) earnings (i.e. the wage rate), reflecting the tendency for labour markets to better reward those with greater skills, there are good reasons for thinking this is a naive measure - an issue which will be explored in the planned research.
Early research on the aggregate impact of education on GNP failed to reflect the findings in individual level studies - that showed large causal effect on wages, this is now attributed to measurement error in the aggregate data on education. In particular, subsequent research in [4] showed that correcting for measurement error bias results in aggregate data leads to effects on per capita GNP that exceed the individual level effects of education. Many countries have sought to increase their average living standards through the expansion of higher education. In the spirit of skills being the most important long-term driver of labour productivity, we aim to analyse the effects of higher education on wages. An excellent recent overview of the skills and productivity literature in Economics can be found in [3] and the role of skills in heavily emphasised in OECD's recent "forward look" in [5].
Early research on the aggregate impact of education on GNP failed to reflect the findings in individual level studies - that showed large causal effect on wages, this is now attributed to measurement error in the aggregate data on education. In particular, subsequent research in [4] showed that correcting for measurement error bias results in aggregate data leads to effects on per capita GNP that exceed the individual level effects of education. Many countries have sought to increase their average living standards through the expansion of higher education. In the spirit of skills being the most important long-term driver of labour productivity, we aim to analyse the effects of higher education on wages. An excellent recent overview of the skills and productivity literature in Economics can be found in [3] and the role of skills in heavily emphasised in OECD's recent "forward look" in [5].
Organisations
People |
ORCID iD |
| Gerd Buchmueller (Student) |
Studentship Projects
| Project Reference | Relationship | Related To | Start | End | Student Name |
|---|---|---|---|---|---|
| ES/R501049/1 | 30/09/2017 | 29/09/2021 | |||
| 1916051 | Studentship | ES/R501049/1 | 30/09/2017 | 30/03/2021 | Gerd Buchmueller |
| Description | While the award is still ongoing the following has been analysed so far as a result of the award. I have studied the relevance and effect of non-cognitive skills within the framework of the returns to Higher Education, on labour market outcomes such as wages and earnings, as well as non-pecuniary outcomes such as criminal participation at age 25. It is common to assume that your personality play an important role in life and certain personality traits like initiative, persistence, motivation, and charm seem desirable for successful life-outcomes. The psychology literature formalises the various facets of an individual's personality with the Big Five personality traits: Openness to Experience, Conscientiousness, Extraversion, Agreeableness, and Neuroticism. This has become a widely used taxonomy of personality traits. Competence, dutifulness, self-discipline, perseverance and work-ethic all represent different sides of conscientiousness, a non-cognitive skill which has been shown to have a particularly strong association with successful outcomes in education as well as the labour market. Locus of control (which is the degree to which people believe to have control over the outcome of events in their lives) and self-esteem are two further personality traits/non-cognitive skills that have been shown to particularly influence job performance and predict wages. The latest survey of The Longitudinal Study of Young People in England (LSYPE) was exploited for measures of non-cognitive skills such as locus of control, conscientiousness/work ethic, and self-esteem. One question of interest is whether previously estimated returns to higher education (Bachelor level) have been overestimated by not considering non-cognitive skills in the equation. We find that the returns to a degree, averaging at 10% 3-4 years after graduation, are in fact robust to the inclusion of non-cognitive skills. We also find that locus of control is the only non-cognitive skill we find predictive of earnings, and that degree classifications capture/reflect this positive effect. The other question of interest is whether and how big the effect of Higher Education is on criminal participation at age 25, as well as which non-cognitive skills are more predictive of criminal behaviour. The same dataset was used to address this question and demonstrated that while locus of control seems to be particularly relevant for earnings, only adolescent work ethic was relevant for predicting criminal behaviour. The higher the work ethic the smaller the probability of committing a crime in early adulthood. Overall it pays off to have a high level of non-cognitive skills (in this case strong belief to have control over the outcomes in your life) regardless of whether you have obtained a degree or not, and the returns to a degree have not been (greatly) overestimated. While a higher adolescent work ethic will reduce the probability of criminal activity in adulthood (age 25). It is encouraging that fostering the development of non-cognitive skills in young people will benefit their future earnings, as they will lead to the high sense of control and work-ethic necessary to achieve a higher degree classification which in turn leads to a greater return in terms of earnings. Fostering a high work ethic in adolescence on the other hand increases human capital, affecting education choices, wage rates and in turn affecting preferences for financial and/or 'psychic' rewards from crime in early adulthood. |
| Exploitation Route | This work highlights the importance of non-cognitive skills in the determination of life-outcomes - the idea was to explore the extent to which the financial return to HE might have been overestimated in existing work, due to omission of these skills as well as determine their financial return and non-pecuniary benefits (such as their predictive power on criminal behaviour in early adulthood). Understanding how non-cognitive skills affect various life-outcomes enables research that can improve the skills of the workforce to improve long-term economic performance which is relevant with regards to the puzzle of what has happened to productivity. It offers the possibility of improving our understanding of how young people should be supported in the development of these skills so that they make the best education and life choices for themselves in their future. Overall it allows to improve the lives of people, benefit the economy, and allow the government to deliver better public services. |
| Sectors | Education |