How Skills and Parental Valuation of Education Influence Human Capital Acquisition and Early Labor Market Return to Human Capital in Canada

Abstract

Using the Youth in Transition Survey, we estimate a Roy model with a three-dimensional latent factor structure to consider how parental valuation of education, cognitive skills, and noncognitive skills influence endogenous schooling decisions and subsequent labor market outcomes. We find that the effect of cognitive skills on adult incomes arises by increasing the likelihood of obtaining further education. Furthermore, we find that both noncognitive skills and parental valuation for education play a larger role in determining income at age 25 than cognitive skills. Last, our analysis uncovers striking differences between men and women in several of the estimated relationships.