The Importance of Cognitive Domains and the Returns to Schooling in South Africa: Evidence from Two Labor Surveys

TL;DR

This study examines how different cognitive skills influence the returns to schooling in South Africa, revealing that specific cognitive domains like executive functioning and numeracy significantly impact earnings in rural and urban contexts.

Contribution

It provides new evidence on the role of distinct cognitive domains in determining the returns to schooling using direct measures and instrumental variable techniques in a developing country.

Findings

Each additional year of schooling increases earnings by 18-20%.

Executive functioning skills are key in rural earnings.

Numeracy significantly impacts urban earnings.

Abstract

Numerous studies have considered the important role of cognition in estimating the returns to schooling. How cognitive abilities affect schooling may have important policy implications, especially in developing countries during periods of increasing educational attainment. Using two longitudinal labor surveys that collect direct proxy measures of cognitive skills, we study the importance of specific cognitive domains for the returns to schooling in two samples. We instrument for schooling levels and we find that each additional year of schooling leads to an increase in earnings by approximately 18-20 percent. The estimated effect sizes-based on the two-stage least squares estimates-are above the corresponding ordinary least squares estimates. Furthermore, we estimate and demonstrate the importance of specific cognitive domains in the classical Mincer equation. We find that executive functioning skills (i.e., memory and orientation) are important drivers of earnings in the rural sample, whereas higher-order cognitive skills (i.e., numeracy) are more important for determining earnings in the urban sample. Although numeracy is tested in both samples, it is only a statistically significant predictor of earnings in the urban sample.