  Numerous studies have considered the important role of cognition in
estimating the returns to schooling. How cognitive abilities affect schooling
may have important policy implications, especially in developing countries
during periods of increasing educational attainment. Using two longitudinal
labor surveys that collect direct proxy measures of cognitive skills, we study
the importance of specific cognitive domains for the returns to schooling in
two samples. We instrument for schooling levels and we find that each
additional year of schooling leads to an increase in earnings by approximately
18-20 percent. The estimated effect sizes-based on the two-stage least squares
estimates-are above the corresponding ordinary least squares estimates.
Furthermore, we estimate and demonstrate the importance of specific cognitive
domains in the classical Mincer equation. We find that executive functioning
skills (i.e., memory and orientation) are important drivers of earnings in the
rural sample, whereas higher-order cognitive skills (i.e., numeracy) are more
important for determining earnings in the urban sample. Although numeracy is
tested in both samples, it is only a statistically significant predictor of
earnings in the urban sample.
