Noncognitive Skills in Economics : Models, Measurement, and Empirical Evidence

Measuring unobserved individual ability is a core challenge of the analysis of questions related to human capital development. For that purpose, concepts from psychology, predominantly measures of IQ have become established means in empirical economics. However, many issues of individual di fferences and their consequences still remain unexplained. Recently, the consideration of personality traits in the economic literature has started and substantially contributes to narrow the gap of explained and unexplained aspects of human capital. With regard to human capital theory, economists usually refer to noncognitive skills in this context. The paper at hand provides an overview on the growing but inuential literature in the field. The composition and impact of noncognitive skills on certain outcomes are usually less familiar to economists and, moreover, in comparison to cognition, these skills exhibit a larger scope for interventions. Therefore, the text should serve as a short introductory guide to a wide audience of readers in economics. This audience includes nonspecialist readers and experts, too. Based on the contemporary literature, central questions and fi ndings regarding measurement, theoretical modeling, and the empirical estimates are summarized. The obtained results shed light on the relation between parental investments, skill formation in general, and later outcomes. From this review, some features highly relevant for the development of human capital skills could be identi fied: Early investments are the most crucial inputs into skill formation in general and should be followed by later investments. As a consequence, early neglect usually cannot be compensated in the aftermath since returns to education diminish. Even more importantly, the impact of acquired noncognitive skills on various outcomes throughout the life course is more eminent than assumed until recently. Not only schooling and later earnings, but also important social and health-related outcomes are strongly a ffected