Talent Misallocation across Countries: Evidence from Educational Achievement Tests

Despite growing evidence on occupational and educational barriers in developing countries, there are few estimates of their effect on the aggregate productivity. This paper measures the magnitude of these barriers and their impact on aggregate productivity using the data on expected occupational choice of students. First, I document striking differences in the way students' skills affect occupational choice across countries. In most developing countries cognitive skills of students have a relatively little effect on prestige, skill intensity, or earning potential of expected occupations. This suggests a higher incidence of occupational barriers in developing countries. Next, I evaluate the efficiency losses associated with occupational barriers by calibrating a model of occupational choice based on the Roy (1951) framework. Workers have correlated Frechet-distributed talents for professional occupations, non-professional occupations, and academic study as measured by academic proficiency scores. I calibrate the model by combining the data on expected occupations and skills from the PISA database with the data from nationally-representative samples of working adults. I find that developing countries can increase the productivity of workers with high school education by up to twenty percent by reducing the barriers to the level of a benchmark country (UK).