The Individual Benefits of Investing in Skills

This chapter considers returns to the individual from investing in skill. It describes the earnings and employment outcomes of people who have completed different levels of formal education across different countries, and goes on to consider the possible causal mechanisms at work. The methodology for estimating wage returns is critically discussed. Whilst much attention has been devoted to considering ability bias, other issues have received less attention. In particular qualifications or amounts of time spent studying are imperfect proxies for skills produced. Furthermore estimates from wage regressions are almost invariably interpreted through the lens of human capital theory -- the existence of a wage premium indicates that the productivity has increased due to the educational investment. Alternative interpretations are considered. These include the possibility that the premium represents a reward for obtaining a job on a fixed distribution of jobs -- in other words winning a positional competition race. Such possibilities raise several concerns. These include under-utilisation, both of general skills and of skills acquired through work-based training programmes, low marginal returns relative to average returns, and a widening and more risky distribution of payoffs.