Publication: Are There Skills Payoffs in Low- and Middle-Income Countries?: Empirical Evidence Using STEP Data
Loading...
Published
2016-11
ISSN
Date
2016-12-05
Author(s)
Editor(s)
Abstract
Most research on the economic payoffs of skills has used individuals' level of schooling attained -- typically years or level of education or training received—as a key proxy for skills. Such research has consistently found that individual returns to schooling are positive and that returns tend to be higher in low- and middle-income countries than in higher-income countries. However, years in school is only one proxy for skills -- are these returns still observed using other measures as proxies? This study uses data from the STEP Skills Measurement Survey to examine the extent to which there is an independent association between cognitive and noncognitive skills and earnings in low- and middle-income countries. The study uses measures of reading proficiency and complexity of on-the-job computer tasks to proxy cognitive skills, and personality and behavioral measures to proxy noncognitive skills. The results demonstrate that even when controlling for schooling and background factors, these skills pay off in the labor market. This is particularly the case for the measures of cognitive skills, while noncognitive skills show some significant, but small, effects on earnings. The findings also suggest that there is significant heterogeneity across countries in how skills are valued in the labor market.
Link to Data Set
Citation
“Monroy-Taborda, Sebastian; Valerio, Alexandria; Sanchez Puerta, Maria Laura; Tognatta, Namrata. 2016. Are There Skills Payoffs in Low- and Middle-Income Countries?: Empirical Evidence Using STEP Data. Policy Research Working Paper;No. 7879. © World Bank. http://hdl.handle.net/10986/25678 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Publication Climate and Social Sustainability in Fragility, Conflict, and Violence Contexts(Washington, DC: World Bank, 2026-01-07)Climate change is widely recognized as a driver of violent conflict, but its broader social effects remain less understood. Ignoring these dimensions risks a vicious cycle where climate policies might undermine socially just adaptation. Evidence is still limited on how climate shocks influence political participation, trust, or migration. This paper helps fill that gap by examining links between climate change, conflict, and social sustainability, with a focus on inclusion, resilience, cohesion, and legitimacy. Using secondary data from 2019–24, the study applies simple correlation-based methods to test three hypotheses on the nature, severity, and composition of these associations. The analysis combines multiple climate impact measures, new conflict classifications, recent social sustainability frameworks, and controls for population and geography. The results reveal strong correlations—not causation—between climate events and contexts of fragility, conflict, and violence. Climate impacts are most pronounced in both national and subnational conflict settings. The study also finds robust links between fragility, conflict, and violence and low levels of social sustainability, reflecting its role as both a driver and consequence of conflict. Some dimensions—such as violent events and insecurity—appear weaker in areas most affected by climate shocks. Two of the hypotheses are supported, and one remains inconclusive.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Institutional Capacity for Policy Implementation: An Analytical Framework(Washington, DC: World Bank, 2026-01-07)State capacity is an important prerequisite for policy implementation, yet at the country level it is difficult to measure, assess, and reform. This paper proposes a focus on institutional capacity: the ability of public institutions to implement the specific policy mandates for which they are responsible. Based on a review of existing literature, the paper defines the different dimensions that compose institutional capacity and groups them into two cross-cutting categories: organizational dimensions (personnel, financial resources, information systems, and management practices) and governance dimensions (transparency, independence, and accountability). The paper proposes measures for organizational and governance dimensions using existing data, shows intra-institutional variation of these measures within countries, and discusses how new data could be collected for better measurement of these concepts. Finally, the paper illustrates how the framework can be used to diagnose the sources of common problems related to weak policy implementation.Publication South Africa’s Fragmented Cities: The Unequal Burden of Labor Market Frictions(Washington, DC: World Bank, 2026-01-08)Using high-resolution administrative, census, and satellite data, this paper shows that South African cities are characterized by spatial mismatches between where people live and where jobs are located, relative to 20 global peers. Areas within 5 kilometers of commercial centers have 9,300 fewer residents per square kilometer than expected, which is 60 percent below the global median. Poor, dense neighborhoods are most affected. In Johannesburg, a 10-percentile increase in distance from the nearest business hub corresponds to a 3.7-percentile drop in asset wealth (a proxy of household wellbeing) and 4.9-percentile drop in employment. In Cape Town, the declines are 4.0 and 3.7 percentiles, respectively. Employment is 87 percent lower in the poorest decile than the richest in Johannesburg and 61 percent lower in Cape Town. These findings suggest that South Africa’s spatial organization of people and economic activity constrains agglomeration and reinforces inequality. This methodology provides a scalable and standardized data-driven framework to analyze spatial accessibility and agglomeration frictions in complex, data-constrained urban systems.Publication Investment in Emerging and Developing Economies(Washington, DC: World Bank, 2026-01-07)The world faces a pressing challenge to meet key development objectives amid slowing growth and rising macroeconomic and geopolitical risks. With the number of job seekers rising rapidly, infrastructure shortfalls continuing to be large, and climate costs mounting, the case for a significant investment push has never been stronger. Yet the capacity to respond in many emerging markets and developing economies has eroded. Since the global financial crisis, investment growth has slowed to about half its pace in the 2000s, with both public and private investment weakening. Foreign direct investment inflows—a critical source of capital, technology, and managerial know-how—have also fallen sharply and become increasingly concentrated, leaving low-income countries with only a marginal share. The risks of further retrenchment are significant, as trade tensions, policy uncertainty, and elevated debt levels continue to weigh on investment. Reigniting momentum will require ambitious domestic reforms to strengthen institutions, rebuild macro-fiscal stability, and deepen trade and investment integration—the foundations of a supportive business climate. At the same time, international cooperation is indispensable. A renewed commitment to a predictable system of cross-border trade and investment flows, combined with scaled-up financial support and sustained technical assistance, is essential to help emerging markets and developing economies—especially low-income countries and economies in fragile and conflict situations—bridge financing gaps and implement the domestic reforms needed to restore investment as an engine of growth, jobs, and development.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Do Cognitive and Noncognitive Skills Explain the Gender Wage Gap in Middle-Income Countries?(World Bank, Washington, DC, 2016-11)Gender-based wage discrimination is a highly researched area of labor economics. However, most studies on this topic have focused on schooling and paid limited attention to the mechanisms through which cognitive and noncognitive skills influence wages. This paper uses data from adults in seven low- and middle-income countries that participated in the STEP Skills Measurement Survey to conduct a comparative analysis of gender wage gaps. The paper uses schooling and skills measures, including reading proficiency and complexity of on-the-job computer tasks to proxy cognitive skills, and personality and behavioral measures to proxy for noncognitive skills in wage decompositions. The analysis finds that years of school explain most of the gender wage gap. The findings also suggest that cognitive and noncognitive skills affect men’s and women’s earnings in different ways, and that the effects of these skills vary across the wage distribution and between countries.Publication Accounting for Mismatch in Low- and Middle-Income Countries(Washington, DC: World Bank, 2016-08-23)To stimulate economic advancement, low- and middle-income countries need well-educated and trained workforces to fill the types of skilled jobs that drive economic growth. Improving educational quality and attainment and providing better training are all rightly put forth as policy recommendations to leverage economic growth and job creation. However, new findings based on large scale surveys of adult skills from the World Bank Group’s STEP (Skills toward Employment and Productivity) Skills Measurement Program suggest that many workers are overqualified for their current jobs (based on the education those jobs require). The results of this study suggest that countries may not reap as much benefit from their investments in quality education and training if weak job creation leaves workers’ skills underutilized. Most of the literature on mismatch focuses on higher-income countries and rates of over-education among college graduates. Accounting for Mismatch in Low- and Middle-Income Countries uses new STEP Skills Survey data from 12 low- and middle-income countries, representing a range of economic and educational and training climates, to better understand the scope and patterns of education and skills mismatch. STEP collects information not only on workers’ level of education and employment status, but also on the types, frequency, and durations of tasks they carry out at their jobs as well as some of the cognitive skills they use. The study also explores additional factors such as gender, health, career stage, and participation in the informal labor sector that may help explain the degree of mismatch rates. The study’s findings indicate that over-education is common in low and middle income countries with both lower and higher rates of educational attainment. There is also evidence that over-educated tertiary workers do not use all of their skills, potentially wasting valuable human capital and educational resources. Aimed at policy makers, business and education leaders, and employers, Accounting for Mismatch in Low- and Middle-Income Countries suggests that job growth must go hand-in-hand with investments in education and training.Publication STEP Skills Measurement Surveys : Innovative Tools for Assessing Skills(World Bank Group, Washington, DC, 2014-07)The Skills Towards Employability and Productivity (STEP) program was designed to better understand the interplay between skills on the one hand and employability and productivity on the other. The STEP program developed survey instruments tailored to collect data on skills in low- and middle-income country contexts. The present note is a reference document for readers seeking background information on the STEP surveys and for users of the data, which is publicly available through the World Bank s Microdata Catalog. The note describes the design of the survey instruments and the constructs measured as well as the technical standards and implementation protocols adopted to ensure data quality and comparability across countries. It also provides guidance to users for the construction of aggregated skills indicators and for the use of the reading literacy assessment data.Publication Taking Stock of Programs to Develop Socioemotional Skills(Washington, DC: World Bank, 2016-08-01)This book represents a systematic review of the documented impacts of programs aimed at fostering socio-emotional skills in developed and developing countries. It uses a life-cycle approach to organize the findings from rigorous evaluations of more than 80 programs. This includes programs for toddlers and young children before primary school, programs for students enrolled in formal education, and programs targeted at the out-of-school population. The book develops a conceptual framework that helps to identify the program characteristics and participants’ profiles associated with a range of program outcomes. These include health-related, behavioral, academic or cognitive, and economic-related outcomes. The review finds that few of the programs studied focus exclusively on the development of socio-emotional skills. In fact, most efforts to develop socio-emotional skills are embedded within innovative education and training curricula, as well as pedagogical and classroom practices. Evidence shows that programs are particularly effective when targeted to highly vulnerable populations and, in particular, to young children. Overall, findings indicate that high-quality programs for young children tend to foster cognitive abilities in the short run and to impact socio-emotional skills over the long run. Programs for students enrolled in formal education (primary and secondary levels) show positive and significant impacts on the outcomes reviewed. The most successful of these programs are implemented school-wide and follow the SAFE approach: that is, they are appropriately sequenced, active, focused, and explicit. Finally, the review finds that programs for out-of-school children and youth are usually designed as a means of achieving immediate labor market outcomes (e.g., job-placement, formal employment, and higher wages). While some of these programs show positive and statistically significant impacts on socio-emotional skills, the impacts tend to be small.Publication Skills and Jobs(World Bank, Washington, DC, 2015-05)The accumulation of human capital through the acquisition of knowledge and skills is recognized as central for economic development. More-educated workers not only have better employment opportunities, they earn more and have more stable and rewarding jobs. They are also more adaptable and mobile. Workers who acquire more skills make other workers and capital more productive and, within the firm, they facilitate the adaptation, adoption, and ultimately invention of new technologies. This is crucial for economic diversification, productivity growth, and ultimately raising the living standards of living of the population. The structure of the note is as follows. First, it examines the different types of market failures, and subsequently reviews the role that governments have played in training systems around the world. Finally it offers a set of proposals for reforming and improving these systems to improve labor market outcomes.
Users also downloaded
Showing related downloaded files
Publication The Quality and Price of Africa’s Imports of Digital Goods(Washington, DC: World Bank, 2024-03-08)Imported digital goods are critical for productivity growth in low-income countries. Using detailed data on international trade flows and tariffs, this paper finds that African nations tend to import relatively low quality, low price digital goods. It also finds that digital goods in Africa are subject to relatively higher tariffs, along with other factors that contribute to their higher cost in the domestic market compared to other regions, especially in some low-income countries. The findings show that the African Continental Free Trade Area will do little to reduce this tariff burden, as most digital goods are sourced from higher income nonmembers. In contrast, unilateral tariff liberalization toward all countries would significantly increase the imports of digital goods in Africa.Publication Exporting and Technology Adoption in Brazil(World Bank, Washington, DC, 2023-06-15)There is limited evidence on the role of participating in international trade in the diffusion of technologies. This paper analyzes the impact of exporting on firms’ adoption of more sophisticated technologies, using a novel dataset, the Firm-level Adoption of Technology survey, which includes more than 1,500 firms in Brazil. The survey provides detailed information on the use of more than 300 technologies, combined with data from Brazil’s census of formal workers and export data from the Ministry of Trade. To address critical endogeneity concerns, the analysis applies difference-in-differences with multiple periods to examine the effects of entering export markets on technology adoption. The findings show that exporting has a positive effect on firms’ likelihood of adopting advanced technologies in business functions related to business administration, production planning, supply chain management, and quality control, which are important for managing tasks associated with export activities.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.Publication Returns to Investment in Education(World Bank, Washington, DC, 2018-04)Returns to investment in education based on human capital theory have been estimated systematically since the 1950s. In the 60-plus year history of such estimates, there have been several compilations in the literature. This paper reviews and highlights the latest trends and patterns based on a database of 1,120 estimates in 139 countries. The review shows that the private average global rate of return to one extra year of schooling is about 9 percent a year and very stable over decades. Private returns to higher education have increased over time, raising issues of financing and equity. Social returns to schooling remain high, above 10 percent at the secondary and higher education levels. Women continue to experience higher average rates of return to schooling, showing that girls' education remains a priority. Returns are higher in low-income countries. Those employed in the private sector of the economy enjoy higher returns than those in the public sector, lending support to the productive value of education.Publication Mobile Broadband Internet, Poverty and Labor Outcomes in Tanzania(World Bank, Washington, DC, 2021-08)What are the impacts of expanding mobile broadband coverage on poverty, household consumption and labor market outcomes in developing countries? Who benefits from improved coverage of mobile internet? To respond to these questions, this paper applies a difference-in-differences estimation using panel household survey data combined with geospatial information on the rollout of mobile broadband coverage in Tanzania. The results reveal that being covered by 3G networks has a large positive effect on total household consumption and poverty reduction, driven by positive impacts on labor market outcomes. Working age individuals living in areas covered by mobile internet witnessed an increase in labor force participation, wage employment, and non-farm self-employment, and a decline in farm employment. These effects vary by age, gender and skill level. Younger and more skilled men benefit the most through higher labor force participation and wage employment, while high-skilled women benefit from transitions from self-employed farm work into non-farm employment.