Do the Cognitive Skills of School Dropouts Matter in the Labor Market?

Does the U.S. labor market reward cognitive skill differences among high school dropouts, the members of the labor force with the least educational attainments? This paper reports the results of an exploration of this question, using a new data set that provides information on the universe of dropouts who last attempted the GED exams in Florida and New York between 1984 and 1990. The design of the sample reduces variation in unmeasured variables such as motivation that are correlated with cognitive skills. We examine the labor market returns to basic cognitive skills as measured by GED test scores. We explore whether the returns differ by gender and race. The results indicate quite large earnings returns to cognitive skills for both male and female dropouts, and for white and non-white dropouts. The earnings payoff to skills increases with age.