Working Paper: NBER ID: w29135
Authors: Santiago Hermo; Miika M. Pällysaho; David G. Seim; Jesse M. Shapiro
Abstract: A large literature in cognitive science studies the puzzling “Flynn effect” of rising fluid intelligence (reasoning skill) in rich countries. We develop an economic model in which a cohort’s mix of skills is determined by different skills’ relative returns in the labor market and by the technology for producing skills. We estimate the model using administrative data from Sweden. Combining data from exams taken at military enlistment with earnings records from the tax register, we document an increase in the relative labor market return to logical reasoning skill as compared to vocabulary knowledge. The estimated model implies that changes in labor market returns explain 37 percent of the measured increase in reasoning skill, and can also explain the decline in knowledge. An original survey of parents, an analysis of trends in school curricula, and an analysis of occupational characteristics show evidence of increasing emphasis on reasoning as compared to knowledge.
Keywords: Cognitive Skills; Labor Market Returns; Flynn Effect; Sweden
JEL Codes: J24; J31; O52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| labor market returns (J49) | logical reasoning performance (C91) |
| labor market returns (J49) | skill investment decisions (J24) |
| logical reasoning performance (C91) | lifetime earnings premium (J17) |
| vocabulary knowledge performance (G53) | lifetime earnings premium (J17) |
| market returns at 1962 levels (G12) | logical reasoning performance (C91) |
| market returns at 1962 levels (G12) | vocabulary knowledge performance (G53) |
| declining relative premiums for vocabulary knowledge (I21) | reallocation of effort towards developing reasoning skills (D29) |