Economists generally accept that the skills rewarded in the labor market arise from a combination of endowed abilities, economic environments, and endogenous human capital in- vestments. Endowments, environments and investments almost certainly interact in compli- cated ways, transforming the distribution of abilities drawn at birth into a distribution of education, wages, and labor supply outcomes over the life-cycle.
Recent advances have led to the discovery of specific genetic variants that predict educational attainment. We study how these variants, summarized as a genetic score variable, are associated with human capital accumulation and labor market outcomes in the Health and Retirement Study (HRS).
Using HRS data, we show that up to 6.6 percent of the variation in educational attainment is explained by the genetic index presented in Okbay et al. (2016).
We demonstrate that the same genetic score that predicts education is also associated with higher wages, but only among individuals with a college education. Moreover, the genetic gradient in wages has grown in more recent birth cohorts, consistent with interactions between technological change and labor market ability. We also show that individuals who grew up in economically disadvantaged households are less likely to go to college when compared to individuals with the same genetic score, but from higher socioeconomic status households. Our findings provide support for the idea that childhood socioeconomic status is an important moderator of the economic returns to genetic endowments. Moreover, the finding that childhood poverty limits the educational attainment of high-ability individuals suggests the existence of unrealized human potential.
A recurring theme in our empirical results is that individuals with similar abilities but born into different socioeconomic circumstances, face diverging economic outcomes. These findings suggest an important role for policies that invest in poor children and, more generally, provide some support that such investments could mitigate inefficiently low investments in human capital (Heckman and Masterov, 2007). Our findings on wasted potential complement mounting evidence from a variety of fields suggesting the misallocation or squandering of human resources. Researchers have reached this conclusion in different ways.
Chosen excerpts by Job Market Monitor. Read the whole story at “Genes, Education, and Labor Market Outcomes: Evidence from the Health ” by Nicholas W. Papageorge and Kevin Thom