Returns to Education and Skills in the Labor Market: Evidence from Japan and Korea

Abstract

This study investigates the determinants of skill proficiency, and the impact of adult skills on earnings, in Japan and Korea. Using the Program for the International Assessment of Adult Competencies survey data, it shows that Japanese adults perform better than Korean respondents, on average, on skill proficiency tests. A decomposition analysis shows that the score gap in literacy, numeracy, and problem solving skills between the two countries is mostly due to different returns to individual characteristics such as upper-secondary and tertiary education. Adult skills have a positive and significant impact on individual earnings and employment probability, in both countries. In Japan, the returns to literacy, numeracy, and problem-solving skills increase significantly with experience, and tend to fall with formal education, suggesting employer learning or human capital accumulation through career progression. In contrast, in Korea, the returns to literacy and numeracy skills do not seem to increase with experience.