OECD Journal: Economic Studies

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OECD Journal: Economic Studies publishes articles in the area of economic policy analysis, applied economics and statistical analysis, generally with an international or cross-country dimension. It draws significantly on economic papers produced by the OECD Economics Department, other parts of the OECD Secretariat and the Organisation’s intergovernmental committees.


Experience and the returns to education and skill in OECD countries

Evidence of employer learning?

Using the Survey of Adult Skills (PIAAC), this paper documents how the returns to education and skill change with experience for a sample of 22 OECD countries. It does this within the framework of the Altonji and Pierret (2001) employer learning model, and therefore also tests the relevance of this theory in a wide range of countries using comparable data and a consistent methodology. Significant heterogeneity is found in the experience profiles of the returns to education and skill across countries, and convincing evidence in support of the employer learning theory is only found in a sub-set of the countries analysed. While these countries vary significantly from one another in terms of their labour market institutions and educational systems, the analysis does seem to suggest that employer learning is most common in those countries where employment protection legislation on temporary contracts is weak. This is consistent with a model in which temporary contracts allow employers to test and learn about young workers, and give them the flexibility to adjust wages in line with observed productivity.

JEL codes: J24, J32, D83

Keywords: Employer learning, returns to education, returns to skill


JEL: J24: Labor and Demographic Economics / Demand and Supply of Labor / Human Capital; Skills; Occupational Choice; Labor Productivity; J32: Labor and Demographic Economics / Wages, Compensation, and Labor Costs / Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions; D84: Microeconomics / Information, Knowledge, and Uncertainty / Expectations; Speculations
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