Labor Market Returns and the Evolution of Cognitive Skills: Theory and Evidence
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.
We thank Dan Benjamin, Ernesto Dal Bó, Peter Fredriksson, Larry Katz, Pete Klenow, Erik Lindqvist, Neil Mehrotra, Kevin M. Murphy, Björn Öckert, Jakob Pietschnig, Eka Roivainen, Andrei Shleifer, David Strömberg, Jonas Vlachos, and seminar participants at UC Berkeley Haas School of Business, BI Norwegian Business School, CIDE, Stockholm University, University of Mannheim, Vanderbilt University, VATT Institute for Economic Research, Bocconi University, Collegio Carlo Alberto, ESE Rotterdam, and Tel Aviv University for helpful comments and exchanges. We thank our dedicated research assistants for their contributions to this project. We acknowledge support from the Jan Wallander and Tom Hedelius Foundation (Grant P2015-0095:1), and from the James M. and Cathleen D. Stone Wealth and Income Inequality Project, the Eastman Professorship, and the Population Studies and Training Center at Brown University. The study is in part based on data from the research infrastructure UGU at the University of Gothenburg. UGU is funded by Swedish Research Council (dnr. 2017-00628) and University of Gothenburg. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the funding or data sources. Translations from Swedish to English are our own, with assistance from Google Translate. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Jesse M. Shapiro
Shapiro has, in the past, been a paid visitor at Microsoft Research New England and a paid consultant for FutureOfCapitalism, LLC. Shapiro has been paid for writing by the New York Times.
Shapiro's spouse has a disclosure statement posted at https://emilyoster.net/about/.
Santiago Hermo & Miika Päällysaho & David Seim & Jesse M Shapiro, 2022. "Labor Market Returns and the Evolution of Cognitive Skills: Theory and Evidence," The Quarterly Journal of Economics, vol 137(4), pages 2309-2361. citation courtesy of