The science is settled. See Study: No economy in the world rewards smart, skilled workers more than America’s. There, James Pethokoukis cites the abstract for Returns to Skills around the World: Evidence from PIAAC, to wit:
Eight countries, including all Nordic countries, have returns between 12 and 15 percent, while six are above 21 percent with the largest return being 28 percent in the United States. Estimates are remarkably robust to different earnings and skill measures, additional controls, and various subgroups. Intriguingly, returns to skills are systematically lower in countries with higher union density, stricter employment protection, and larger public-sector shares.
Pethokoukis makes this observation:
I find particularly interesting the finding that (a) the return to skills is highest in America and lowest in Nordic-land, and (b) returns are higher in economies with more open, private-sector based labor markets. Wouldn’t this seem to argue that higher US inequality — based on pre-tax, pre-transfer market incomes — reflects 21st century market forces rewarding ability rather than some sort of breakdown in social norms? If so, shouldn’t the policy response favor creating, as much as possible, a labor force better and more broadly capable of flourishing in this environment rather than artificially lowering the return to skills and America’s growth potential?
Yes and yes.
Then there's that pesky detail about the labor force participation rate stuck at 62.6 percent, a 38-year low. Little wonder that Donald Trump -- with his promise to create jobs -- has gained so much momentum.
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