Cognitive Skills Matter: The Employment Disadvantage of Low-Educated Workers in Comparative Perspective

Abstract

It is now a widely acknowledged fact that the low-educated workers are facing important risks of labour market exclusion in modern economies. However, possessing low levels of educational qualifications leads to very different situations from one country to another, as the cross-national variation in the unemployment rates of these workers attest. While conventional wisdom usually blames welfare states and the resulting rigidity of labour markets for the low employment opportunities of low-educated workers, empirical evidence tends to contradict this predominant view. Using microdata from the International Adult Literacy Survey that was conducted between 1994 and 1998, we examine the sources of the cross-national variation in the employment disadvantage of low-educated workers in 14 industrialized nations. In particular, we test the validity of the conventional theories concerning the supposedly harmful effect of labour market regulation against a new and promising hypothesis on the importance of cognitive skills for the employment opportunities of the low-educated workers. Our findings support the latter and suggest that the greater the cognitive gap between the low-educated workers and those with intermediate education, the lower the chances of being employed for the former relatively to their higher educated counterparts.