“The new literacy” is the term Neelie Kroes, Vice-President of the European Commission, uses to describe an individual’s skill in mastering information and communication technologies (ICT). She justifies her choice of this phrase by arguing that “the online world is becoming a bigger part of everything we do. No wonder these [ICT] skills are becoming central in the job market.”1 Even though this statement is intuitively plausible, empirical evidence on how the labor market rewards ICT skills has yet to be provided. The main reason for this lack of research is the unavailability of data to measure ICT skills consistently within or across countries, and the difficulty of drawing credible inferences when it is not known whether an individual’s level of ICT skills is just a reflection of his or her general ability. Using novel, internationally comparable data on individuals’ skills in ICT and other domains across 19 countries from the Programme for the International Assessment of Adult Competencies (PIAAC), this paper is the first to investigate the wage returns to ICT skills.
Our results indicate that better ICT skills are systematically related to higher wages, with a one standard deviation increase in ICT skills leading to a 7.5 percent increase in wages.
By showing that ICT skills are rewarded quite substantially in the labor market, our results provide support for Neelie Kroes’s notion of ICT skills as “the new literacy.” Still, our findings should not be interpreted as conclusive evidence that ICT skills are valued more highly than other types of skills in modern knowledge-based economies. Providing such evidence would require identifying sources of variation that systematically capture other domain-specific skills that are not confounded by a person’s general ability. However, given that evidence on the causal returns to cognitive skills (general or domain-specific) has been rare thus far, we consider our work a suitable starting point for further inquiry into causality in the returns-to-skills estimation.