Adult literacy, heterogeneity and returns to schooling in Chile

We examine the importance of adult functional literacy skills for individuals using a quantile regression methodology. The inclusion of the direct measure of basic skills reduces the return to schooling by 27%, equivalent to two additional years of schooling, while a one standard deviation increase in the score increases earnings by 20%. For those who are less skilled, more education contributes little to earnings; rather skills are the key to higher earnings. The nonschooling component of skill is a significant contributor to earnings, but not the component associated with years of schooling.