Cross-National Differences in the Skills-Earnings Relationship: The Role of Labor Market Institutions

Abstract

This study examines cross-national differences in returns to literacy skills and explores possible explanations for such differences. Data from the International Adult Literacy Survey (IALS) are analyzed using multilevel models. Returns to literacy skills are higher in liberal market economies (LMEs) than in social market economies (SMEs). Collective bargaining coverage emerges as the most potent predictor of cross-national variation in returns to skill. Cross-national differences in workers' skill demands, skill profiles and welfare state regimes do not explain the observed differences in returns to skill.