Cognitive and socioemotional skills and wages: the role of latent abilities on the gender wage gap in Peru

Abstract

The literature provides evidence on the positive connection between cognitive test scores and higher wages. Fewer and newer studies have explored the correlation between non-cognitive test scores and wages. However, these studies only focus on developed countries. The main objective of this study is to identify latent abilities and explore their role in the gender wage gap in a developing country: Peru. The main identification strategy relies on exploiting panel data information on test scores and arguing that time dependence across measures is due to latent abilities. We exploit two databases: the Young Lives Study and the Peruvian Skills and Labor Market Survey. The results show that when accounting for differences in actual latent abilities, socioemotional abilities account for important inter-gender differences in the endowment and returns of abilities. Moreover, inter-gender differences in latent abilities play an important role in not only wage profiles but in schooling, employment, and occupational decisions.