The Value of Nascent Skills

for Employability in Peru

Informing Human Development: ESW Fair

Wednesday, January 12, 2011

Motivation and Questions

1. Why focus on multiple skills? (Beside schooling)

2.Which skills matter most for employability in Peru? (New Skills & Labor Survey)

3.How can they be developed through public intervention? (What it means for the Bank)

3

Why multiple skills? Peruvian employers want both cognitive and socio-emotional skills

• Corroborated by data from ICA surveys, public job intermediation service, qualitative study/interviews of larger firms (similar to OECD, other MICs)

~=40%Non-cognitive

Wage costs

Lack trained staff

Dishonesty/unreliability

Ineptitude

Irresponsibility

Workers too slow

Others

0 5 10 15 20 25 30 35

Personal references

Years of experience

Police report

Age

Gender

Secondary education

Technical education

Primary education

Family situation

University education

Religious beliefs

Other

0 2 4 6 8 10 12 14 16 18 20

Employers’ reported problems to hire suitable workers (% responses)

Employers’ reported factors considered always/frequently to assess workers suitability (% responses)

Source: Peru Firm Informality Survey 2007, N=804 firms,1-50 employees

Which skills matter most for employability in Peru?:

Learning from a New Labor Skills Survey

Measuring Skills and Employability• Developed over 1+ year (DECRG grant), interdisciplinary team

• Representative of main urban areas (n=2,666 HHs) and regions. Built on national HH survey, supplemented by modules on:

– Employability outcomes (employment, earnings, job satisfaction)– Labor insertion, educational trajectories, family background – Skills: Cognitive (receptive language, verbal fluency, working memory,

numeracy-problem solving) and socio-emotional (Big-5 Personality Factors, GRIT)

• Big-five: wide consensus that personality traits cluster into five factors:

– Openness to experience; Conscientiousness; Extraversion; Agreeableness; Neuroticism (inverse of emotional stability)

• GRIT: Narrower trait “perseverance (duration of effort) & passion for long-term goals (consistency of interest)” (Duckworth et al 2007)

• Strong predictor of high achievement in US (over cognitive ability)

6

While interrelated, these skills capture distinct dimensions of human capacity/motivation

Cognitive skills more highly interrelated (‘G’ IQ), socio-emotional less so

• OECD evidence of causal connection behind correlations (Heckman

et al)

Correlation between socio-emotional test scores

PPVTWorking memory

Numeracy-problem solving

Verbal fluency

Summary Cognitive

score

Years schooling

Working memory

0.35 1

Numeracy-problem solving

0.55 0.38 1

Verbal fluency

0.43 0.31 0.43 1

Summary Cognitive score 0.80 0.66 0.81 0.72 1Years schooling 0.62 0.42 0.51 0.40 0.64 1

0.00

0.10

0.20

0.30

0.40

0.50

Open

ness

Extra

versi

on

Agree

ablen

ess

-co

opera

tion

Agree

ablen

ess

-kin

dnes

s

Emoti

onal

stabil

ity

Cons

cienti

ousn

ess

Cogn

itive a

bility

Years

scho

oling

GRIT total Cognitive ability Years schooling

Correlation between cognitive test scores

Which skills matter most for employability in Peru?:

Earnings returns to skills and schooling

Cognitive and socio-emotional skills correlate significantly with earnings

• When assessed individually without controlling for schooling (yes, parental education, demographics), workers scoring 1 std dev higher in these skills earn more:

– 10 percent (working memory, verbal fluency) to 18 percent (receptive language, numeracy)

– 8 percent (Big-five emotional stability, openness to experience, extraversion) to 13 percent (Grit-perseverance )

• Those scoring higher in agreeableness (facet cooperation) have 5 percent lower earnings (found in U.S too!)

These correlations reflect direct earnings returns besides years of schooling

VARIABLES Coefficients from 2-step IV Mincer regression

Years of schooling 0.069***

Overall cog ability 0.094***

Extraversion 0.056

Agreeableness-kindness -0.044

Agreeableness-cooperation -0.080***

Conscientiousness -0.027

Emotional Stability 0.049**

Openness -0.002

GRIT consistency of interest -0.002

GRIT perseverance of effort 0.090*

Dep. variable: Log (hourly earnings)Coefficients from two-steps Mincer regression. 1st step regresses cognitive ability and instruments education to compute cognitive ability residualized from education, which is then used in 2nd step (Hansen, Heckman & Mullen 2004). Control variables: work exp. and square, gender, ethnic group, zone of residence, parental background. Personal traits in z-scores. t-statistics in brackets. *** p<0.01, ** p<0.05, * p<0.1. N=1,142. R-squared= 0.20

Cognitive and socio-emotional skills give comparable advantage in life-time earnings, though below college credentials

+ 2SD

+ 2SD

+ 2SD

+ 2SD

Prim. Comp.

+ 1SD

+ 1SD

+ 1SD+ 1SD

Sec. Incomp.

MEAN MEAN MEAN MEAN Sec. Comp.

- 1SD

- 1SD

- 1SD- 1SD

Higher Tech.

- 2SD

- 2SD

- 2SD- 2SD

Higher Univ.

100

130

160

190

220

250

Cognit. ability Agreeable-Coop. Emot. Stab. GRIT-Perseverance Education

S/. t

hous

ands

Women

+ 2SD

+ 2SD

+ 2SD

+ 2SD

Prim. Comp.

+ 1SD

+ 1SD

+ 1SD+ 1SD

Sec. Incomp.

MEAN MEAN MEAN MEAN Sec. Comp.

- 1SD

- 1SD

- 1SD- 1SD

Higher Tech.

- 2SD

- 2SD

- 2SD- 2SD

Higher Univ.

100

130

160

190

220

250

Cognit. ability Agreeable-Coop. Emot. Stab. GRIT-Perseverance Education

S/.

thou

sand

s

Men• Advantage from higher cognitive ability comparable to some socio-emotional skills

• Both can compensate for low schooling

• Education produces largest earnings inequality – college educated have biggest advantage

• Note: Simulations of age-earnings profiles over work life (graduation-65 yrs retirement) for typical workers using Mincer regression parameters (discount rate 5%)

Which skills matter most for employability in Peru?:

skills schooling

Skills beget skills: Cognitive ability strong predictor of educational achievement

• Holds controlling for host of confounding factors. OECD evidence of two-way causal connection

•

Distribution of Summary cognitive scores by education level

Skills beget skills: Socio-emotional skills also predict educational achievement, though less so

• Holds controlling for host of confounding factors. OECD evidence of two-way causal connection

Distribution of GRIT scores by education level

Cognitive and socio-emotional skills appear more binding for college access than financial constraints

Note: Simulations from bivariate probit regressions: Eq1: 1= pursued tertiary education, 0=otherwise; Eq2: 1= enrolled in college, 0= enrolled in technical/non-university. Controls for individual and family factors such as gender, ethnic group, parental/family background, reported SES and scholastic performance during secondary schooling and. Wald test of indep. Eqns: Prob > chi2 =

0.0063

(*) Increasing monetary resources implies changing self-reported socioeconomic status at the time of secondary schooling from low to medium class; increasing abilities implies moving from the bottom to the upper third of the ability distribution.

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

Enrollment in higher education University | institute enrollment

Monetary resources Cog. ability GRIT

Change in probability of tertiary education enrollment

Recapping the Evidence

• Schooling (content + credentials) and cognitive and socio-emotional skills are all very valued in the Peruvian labor market

• Significant gaps in these skills between working-age of better-off and worse-off families

• Timely development of cognitive and socio-emotional skills and improved educational achievement go together, and are essential to a more competitive and equitable Peru

How can these skills be developed through public intervention?

What does it mean for the Bank?

Science and Policy Evaluation gives ample room for Cost-effective Public Intervention

• “Nature” vs “Nurture” separation obsolete: Heritability + family influences interact, both matter• Different sensitive periods: Socio-emotional skills more malleable

through adolescence/early 20s

• With adequate support, good parenting and schools can develop cognitive and socio-emotional skills (Durlak et al;

Heckhman & Cunha; Sankoff et al; WB ECD studies):

– “Tools of the Mind” improve pre-school children’s self-control. Universal school-based interventions (K - high-school), youth mentoring (Big Brother/Sister) & training improve Big-five-related skills

• Early investments to compensate initial disadvantage can be costly, but also yield high returns

What does it mean for the Bank?• Help redefine what it takes to be a well-educated person in

the 21st Century• Cognitive and socio-emotional skills determine a person’s “readiness

to learn” through the life cycle

– Numeracy, literacy and academic qualifications a core but not the only output of education systems. Curricula, learning standards and pedagogic practice should also take socio-emotional skills seriously

• Expand policy research (already happening) to underscore evidence base of links between early HD investments (maternal, child nutrition & health, ECD) & employability skills

– Issue: intangibility and long maturity of investments vis-à-vis short political horizons – better outreach, broader social consensus building (Peru video)

• Learn from and build capacity to adapt successful interventions (expertise on developmental, education psychology)

Thank you!