Welcome to the Profit of Education website. Continuing the conversation begun in the book Profit of Education, we discuss the latest economic evidence on education reform.

Do academic skills really pay off?

You’d be really surprised if the answer to the question posed in the title were “no,” wouldn’t you? Be assured, the answer is “yes.” Rick Hanushek and co-authors have measured the returns to skills, doing two things different from what’s been done before. First, they look at returns in 23 countries around the world. Second, they look at earnings of prime-age workers. (Most other studies have looked only at young workers.)

It won’t surprise you that the returns to skills are large. Interestingly, the returns are larger in the United States than in other countries; something I suspect is due to our unequal income distribution.

I’ve run a quick calculation using the authors’ numbers to give an easy to understand interpretation. Line people up in skill order in terms of numeracy. For every buck the guy in the middle (rank 50) makes, the guy ranked up at position 84 makes $1.28.

Of course people who are more numerate are, on average, also much literate. The authors’ numbers suggest that the extra 28 percent earned in the example above is due about 2/3rds to higher numeracy and 1/3rd to higher literacy. So while you’re practicing with your slide rule, be sure to brush up your Shakespeare too.

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One Response to Do academic skills really pay off?

  1. Chris says:

    “Interestingly, the returns are larger in the United States than in other countries; something I suspect is due to our unequal income distribution.”

    You have the causality backwards. Our unequal income distribution is due to our unequal distributions of talent, education and good work habits.

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