bias. New research by Prada (forthcoming) finds that vocational skills acquired in high school have a positive impact on post-graduation labor earnings, but these returns are significantly lower than returns to cognitive and non-cognitive skills.<sup>7</sup> In spite of this research, most education and training systems continue to teach a 1950s facts-based curriculum in a skills-hungry labor market. Many countries are seeing falling returns to education and youth are increasingly dissatisfied by the education that they are receiving. For example, Aedo and Walker (2012) find that returns to secondary and tertiary education across the Latin America region have been falling over the past two decades; they argue that this is due to stagnant education quality rather than an increased supply of students at these grade levels.<sup>8</sup> While 72 percent of education providers interviewed in a global study believe that their students are prepared for the labor market, only 42 percent of employers have the same view (Mourshed, Farell and Barton 2012). A similar gap emerges in a study of employers in the Middle East and North Africa, with 20-35 percent of employers feeling that young graduates have the necessary skills for the labor market, in contrast to such a belief among almost all the education providers interviewed (IFC 2010). Students themselves are observing this trend and increasingly explaining their reason for dropping out of secondary school or not continuing to tertiary is due to a lack of relevance of what schools are teaching (Cunningham et al. 2007). As schools, particularly in developing countries, continue to focus on teaching basic cognitive skills and facts, and governments continue to equate “labor market skills” with technical skills, employers continue to lament the difficulty in finding workers even in high unemployment economies.

Notably, employer voices are absent from the debate. While one may argue that the supply-side data tell the whole story, they are not likely to capture the employer preferences for several reasons. First, supply-side surveys are necessarily a self-report of skills levels and therefore noisy data. Second, if skills are measured in supply side surveys, they are commonly confined to a subset of skills, namely those captured by standardized test scores and, in rare occasions, more comprehensive cognitive tests such as the PPVT or the Raven, to measure cognitive skills and the Goldberg Big Five to measure

> 7 Prada and Urzúa (forthcoming) shows that acquisition of more cognitive and non-cognitive skills is not necessarily income improving for all students.  Instead, those with high level of technical skills and low levels of cognitive and non-cognitive skills benefit more from not going to college and staying just with the technical skills track. 8 A related stream of work examines the evolution of the tasks content – and therefore the underlying skills – of different occupations.  Autor et al. (2003) and Acemoglu and Autor (2011) find that the skills content of US occupations has moved away from routine manual tasks and toward higher-order (non-routine analytical) cognitive and socio-emotional (non-routine interpersonal) tasks.  Similar trends are observed in other OECD countries (Handel 2012) and in a sample of six Latin American countries (Aedo et al. 2013). These data are derived from an observed equilibrium and are useful to understand the patterns of occupational skill content, though the results cannot be extrapolated to unmet employer demand.

4