Grupos de Investigación

Skill Formation and the Potential to Have a Good Job

  • Jaya Krishnakumar (Geneva School of Economics and Management, Suiza)
  • Ricardo Nogales (Universidad Privada Boliviana) 
We analyze human development in the context of labor markets building upon a combination of Heckman's and Sen's body of academic work. Most modern studies on this aspect of individual wellbeing rely on classic theories developed by Becker (1993) and Mincer (1974), which tend to reduce wellbeing to monetary income and to consider schooling as a direct determinant of this unidimensional notion of wellbeing. We take a different stand on both statements.
On one hand, based upon Sen’s Capability Approach, we defend the idea that having a good job is a multidimensional aspect of wellbeing. We take into account multiple labor market outcomes simultanously to assess the adequacy of a job, including income/wage, stability and access to social security.
On the other hand, years of schooling are first-order educational outcomes that enable other personal outcomes in turn, such as abilities or skills. We consider links between schooling, skills and labor market outcomes based on Heckman’s most recent contributions to human development theories; we give partircular importance to the dynamic process of skill formation accounting for possible endogeneity of investments in their acquisition and the unobservable nature of human abilities.
Our empirical estrategy consists of a Simultations Equation Model (SEM) with latent variables. We consider the potential to have a good job as a person's wellbeing, respecting her individuality and freedom to choose. We consider two types of skills: cognitive, defined roughly as intelligence or acquired knowledge and non-cognitive, related to personality traits, attitudes and behaviour. Investments for skill formation include schooling and parental efforts to reduce negative age gaps in school-start.
We apply our model to Bolivia; we use data from the household survey of the World Bank’s Skills Towards Employability and Productivity program. We estimate three variants of our structural model. The first considers investments for skill formation as exogenous; the second considers these investments as endogenous and introduces investment policy functions to model decisions to invest; the third considers investments as endogenous and estimates the investment policy functions as the first step of a standard two-stage IV procedure. In light of a Hausman test, we confirm endogeneity of our two considered investments, thus we retain the third variant of our SEM.
Among our most salient results, we find that:
  • cognitive and non-cognitive skills are important determinants of the capability of having a good job. Cognitive skills have an effect that is 4.5 times greater relative to non-cognitive skills.
  • people with tertiary education tend to triple non-cognitive skills compared to people that have only finished primary school. Cognitive skills tend to almost double for people with tertiary education.
  • Greater school-start gaps hinders cognitive skills most severely, reducing them up to 0.35 times compared to timely start of schooling.
  • parents’ education have a significant influence on skills and capability of having a good job. More privileged family background yields more investments, greater skills and thus greater capabilities for a good job. Cognitive and non cognitive skills may end up doubling if one has at least one parent with tertiary education.

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