Insights from Pakistan and Sri Lanka

To capture the impact of socioemotional skills on the earnings of poor workers, this analysis distinguishes between formal sector workers and informal sector workers. Informal sector workers in South Asia tend to be poorer than formal sector workers. In Pakistan, 63 percent of informal wage workers receive monthly wages that are below the minimum wage of PRs 15,000, while the share among formal wage workers is 14 percent. Formal sector and informal sector workers also differ across other characteristics. For example, 47 percent of informal wage workers have no education versus only 13 percent of formal wage workers; only 6 percent of informal wage workers have completed tertiary education compared with 38 percent of formal wage workers.

UNDERSTANDING THE SOCIOEMOTIONAL PROFILES

This chapter uses the 2014 Pakistan LSS and the 2012 Sri Lanka STEP survey to study how socioemotional skills affect earnings and the formality status of workers in the labor market. The surveys are nationally representative household surveys that gather information on all household members through interviews with one member age 15–64 in each household. They contain information on demographics, employment, incomes, and skills (cognitive, socioemotional, and technical). The information on socioemotional skills is based on the Big Five categories, along with measures of grit, perceptions of hostility, and decision-making; cognitive skills—working memory and reasoning—are measured by Raven scores, which are only available in Pakistan.5 The Sri Lanka STEP survey includes a literacy assessment that provides measures of literacy proficiency.6 The 2014 Pakistan LSS has 2,354 observations covering all urban and rural areas except for Baluchistan and the erstwhile Federally Administered Tribal Areas. The Sri Lanka STEP survey also covers all urban and rural areas with a sample size of 2,989 observations.

Two outcomes of interest for the analysis are derived from these surveys: formality and observed earnings. Because of data availability, workers in Pakistan are considered formal if they have a legal contract, whereas, in Sri Lanka, workers are considered formal if they have access to benefits, such as pensions. Both the LSS and the STEP record monthly earnings in local currency units.

Here, the analysis considers simple correlations between socioemotional skills and education, earnings, participation in the informal versus formal sectors, and income levels. The next section estimates the relationship between socioemotional skills and earnings, controlling for other influences on earnings.

In both Pakistan and Sri Lanka, socioemotional skills are correlated with high educational attainment (see annex 6A, figures 6A.1 and 6A.2). At a disaggregated level, socioemotional skills such as extroversion, openness, decision-making, and emotional stability are greater among respondents with postsecondary and tertiary education than among respondents with lower educational attainment. This finding is consistent with the literature (figure 6.1). Heckman, Stixrud, and Urzua (2006) find that personality