Labor Market Returns and the Evolution of Cognitive Skills: Theory and Evidence

Abstract

A large literature in cognitive science studies the puzzling “Flynn effect” of rising fluid intelligence (reasoning skill) in rich countries. We develop an economic model in which a cohort’s mix of skills is determined by different skills’ relative returns in the labor market and by the technology for producing skills. We estimate the model using administrative data from Sweden. Combining data from exams taken at military enlistment with earnings records from the tax register, we document an increase in the relative labor market return to logical reasoning skill as compared to vocabulary knowledge. The estimated model implies that changes in labor market returns explain 37 percent of the measured increase in reasoning skill, and can also explain the decline in knowledge. An original survey of parents, an analysis of trends in school curricula, and an analysis of occupational characteristics show evidence of increasing emphasis on reasoning as compared to knowledge.

Education, Gender, and Family Formation

“…While schools are still working on ways to target social skills -parents have been recognized as a crucial input for the development of these types of higher order skills (Doepke and Zilibotti, 2017;Black et al, 2018). Moreover, recent research from Sweden suggests that parents are aware of these shifts in skill-demand (Hermo et al, 2022). And, although household activities have become more equal, women bear the brunt of childcare responsibilities -even in relatively gender equal countries like Finland (Kleven et al, 2023).…”

“…While schools are still learning how to foster non-academic skills, parents have been shown to be crucial in developing these types of higher order skills (Doepke and Zilibotti, 2017;Black et al, 2018). Moreover, recent research from Sweden suggests that parents are aware of these shifts in skill-demand (Hermo et al, 2022). And, in the United States highly educated mothers spend more time with their mothers in childcare intensive activities -even though they enjoy it less and face higher opportunity costs than their less educated peers (Kalil et al, 2023).…”

Deconstructing Human Capital to Construct Hierarchical Nestedness

“…We find that occupations' general skills carry a strong predictive power in determining their wages. The importance of general skills in enabling undertaking of the most complex tasks, overlooked in the two prior streams, has been observed as increased fluid reasoning abilities in developed countries since the beginning of the twentieth century, known as the "Flynn E↵ect" [50]. We find robust empirical evidence for the growth of general skills in individuals' careers from resume data, increased importance and level of general skills over time when comparing occupational skills from 2019 to 2003, and in a synthetic age cohort, in which we observed occupations with higher median worker age have higher general skills.…”

The labor market in Russia and its regions

“…The research methodology is based on the results of many years of work on the employment of graduate students of Tuva State University, observation and comparison of the needs of republican employers during meetings related to the employment of university graduates, analysis of statistical materials of the Ministry of Labor of Russia, the All-Russian Research Institute of Labor of the Ministry of Labor of Russia, the All-Russian database of vacancies and the resume "Employment in Russia", the Ministry of Labor and Social Policy of the Republic of Tyva and the works of Russian and foreign scientists and experts who study the problems of the labor market [13][14][15][16]. Analysis of the modern architecture of the labor market in the context of the introduction of several packages of sanctions, economic uncertainty and instability, the risk of mass layoffs due to the departure of international companies from the Russian market, the number of jobs is reduced and unemployment is growing, so some professions become obsolete, others become very popular, but about almost no one knows the others [17][18][19][20][21].…”