Decomposing Cross-Country Differences in Skills: Evidence from Four Nordic Countries

This paper performs multivariate analysis of skill differences in the Nordic countries as assessed by OECD’s PIACC survey of adults aged 16-65. We decompose the differences in average skills between Finland and each of the three Scandinavian countries into a component that is due to different skill levels in subgroups of the population and a component that is due to differences in the composition of subgroups. The decompositions show that the high Finnish average skill level compared to the three Scandinavian countries can be attributed the low share of immigrants in Finland and to high scores among Finns with high school and less than high school education. The Finnish average score is pulled substantially downwards as a consequence of the low numeracy skill level among older Finns, which is consistent with an increase in the quantity or quality of Finnish education over time, relative to the other three Nordic countries.