Why Do Schooling and Experience Affect Workers’ Productivity on the Job So Differently Across Countries?

Abstract

Acemoglu, Johnson, and Robinson [2001] present evidence that colonies with inclusive and extractive institutions have grown at different rates since colonial times. I examine whether their findings are consistent with the estimated effects of schooling and experience on earnings over workers’ 40-45 year working lives in eight countries. I find that an additional year of schooling quickly raised young workers’ earnings in the U.S. and Britain and then had a declining effect over their working life. I find the opposite pattern in six former Spanish colonies where the initial effect of schooling was small and then rose steadily. The effect of experience on the job was also completely different, raising workers earnings by about 200% in the U.S. and Britain and by only 30% temporarily in the former Spanish colonies. I explain how the very different institutions and cultural characteristics in these countries cause these radically different effects on earnings.