Cognitive Skills Matter: The Employment Disadvantage of the Low-Educated in International Comparison

Abstract

It is now a widely acknowledged fact that the low-skilled are facing important risks of labour market exclusion in modern economies. However, possessing low levels of educational qualifications leads to very different situations from one country to another, as the cross-national variation in the unemployment rates of the low-skilled attest. While conventional wisdom usually blames welfare states and the resulting rigidity of labour markets for the low employment opportunities of low-skilled workers, empirical evidence tends to contradict this predominant view.Using microdata from the International Adult Literacy Survey that was conducted between 1994 and 1998, we examine the sources of the cross-national variation in the employment disadvantage of low-skilled workers in 14 industrialized nations. In particular, we test the validity of the conventional theories concerning the supposedly harmful effect of labour market regulation against a new and promising hypothesis on the importance of cognitive skills for the employment opportunities of the low-educated. Our findings support the latter and suggest that the employment disadvantage the low-educated experience relatively to medium-educated workers is mainly due to their deficit in the skills that have become so important for labour market success in the recent past, namely cognitive skills.