Reconciling heterogeneous results on the returns to skills in Africa

Recent evidence indicates substantial heterogeneity in the returns to skills across countries, but only a few studies have explained the varying patterns in the return to skills. Using the 2013 STEP data for Ghana and Kenya, we estimate the causal effect of cognitive and noncognitive skills on a large set of labour market outcomes by controlling for important predetermined variables. We find that cognitive skill remains an important predictor of labour market outcomes but its effect is largely mediated by the year of schooling. We document that the labour market effects of noncognitive skills are smaller than reading proficiency, but with large variation across labour market outcomes. Interestingly, we show that schooling does not mediate the effect of noncognitive skills, meaning most of these skills are acquired outside the classroom. A decomposition analysis shows that local labour market characteristics, such as formal jobs and skilled labour demand, explains the lion share of the heterogeneity whereas the job-skill matching quality plays a significant role in the unexplained part.