ESSAYS ON THE ECONOMICS OF ABILITY, EDUCATION, AND LABOR MARKET OUTCOMES

Abstract

The analysis of the heterogeneity in worker ability and its economic implications have been a focus of a broad strand of research in labor economics.

Several studies have demonstrated that both cognitive and socio-emotional dimensions of ability have a positive effect on wages, schooling, and the probability of choosing high paying occupations. However, there is no theoretical reason to expect that all dimensions of ability affect outcomes in the same direction.

This dissertation, composed of four chapters, shows that mechanical ability, jointly with cognitive and socio-emotional dimensions, affects schooling decisions and labor market outcomes. Moreover, it demonstrates that this facet of ability has a positive economic return and affects schooling decisions and occupational choices differently than other measures of ability.

Chapter 2 introduces the concept of mechanical ability, describes the tests used to measure it, and compares this dimension with other more conventional measures of ability.

Chapter 3 presents a general framework to understand the effects of multiple dimensions of ability on outcomes, taking into account that workers sort into the occupations pursuing the tasks where their ability gives them comparative advantage. This framework is used to decompose the overall effect of unobserved abilities into the components explained by schooling decision, occupational choice, and direct on-the-job productivity. I show that all three dimensions of ability have multiple, heterogeneous, and independent roles. They influence the sorting of workers into schooling and occupations, and also have a direct effect on wages. This implies that a policy that increases ability at advanced ages, when schooling and occupational decisions cannot be altered, may still have a direct impact on wages.

Chapter 4, written in collaboration with Sergio Urzua, analyzes the implications of considering the three dimensions of ability on the decision to attend a four-year college. We find that, despite the high return associated with college attendance, individuals with low levels of cognitive and socio-emotional ability but high mechanical ability could expect higher wages by choosing not to attend a four-year college. These results highlight the importance of exploring alternative pathways to successful careers for individuals with a different profile of skills.