Comment on “Returns to Education and Skills in the Labor Market: Evidence from Japan and Korea”

• Published date: 01 January 2017
• DOI: http://doi.org/10.1111/aepr.12171
• Date: 01 January 2017
• Author: Marcus Noland

Comment on “Returns to Education and Skills

in the Labor Market: Evidence from Japan and

Korea”

Marcus NOLAND†

Peterson Institute for International Economicsand East-West Center

JEL codes: I26, J24, J31

Lee and Wie (2016) is an outstanding paper, undoubtedly one of the best that the Asian

Economic Policy Review has ever published. The authors use data from the organization

of Economic Cooperation and Development’s Program for the International Assessment

of Adult Competencies (PIAAC) for Japan and Korea to systematically evaluate the

determinantsof adult competencies, the effectiveness of educationaland training programs,

and the impact of competence, education, training, and experience on labor market

outcomes including employment and earnings. The statistical robustness of the results is

assessed in a variety of ways. The analysis generates a number of conclusions from which

the authors draw normative lessons.

Lee and Wie find that in the labor market, the return to skills trump additional formal

education. In turn, “the higher performance in skill proficiency tests of Japanese adults,

relative to Korean respondents, may not depend on favorable characteristics, such as age,

gender, educational attainment, father’s education, jobmarket experience, and non-formal

job-related education, but on higher returns to skills of such characteristics, especially

upper-secondary and tertiary education,”(Lee and Wie, 2016, page 158), implying that

the Japanese education system is operating more effectively than the Korean one.

Furthermore, in Japan, the returns to skills rise with experience, consistent with the

employer learning model. These effects are much attenuated in the Korean data, however,

leading Lee and Wie to speculate that the rigidity of Korean labor markets may impede

employers from recognizing and rewarding particularly skilled employees, that the PIAAC

data does not capture skills that are developed through work experience in Korea, or that

there is simply less variation in latent skill levels among Korean employees.

My remaining comments should be regarded less as a criticismof the paper per se than

as a rumination on some confounding effects that may inform one’s interpretation of the

results. As Lee and Wie note, they have data on a single year, 2012, covering individuals

born between 1947 and 1987. If one takes age 20 as a simple marker for a young person

entering the labor force or attending university, the relevant period is 1967 to 2007. Both

Japan and Korea underwent tremendous transformations over this period. Both countries

experienced significant declines in the secular growth rate, transitioning from high to low

†Correspondence: Marcus Noland, Peterson Institute for International Economics and East-West

Center, 1750 Mass. Ave. NW, Washington DC 20036, USA. Email: mnoland@piie.com

doi: 10.1111/aepr.12171 Asian EconomicPolicy Review (2017) 12, 163–164

©2017 JapanCenter for EconomicResearch 163

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