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Cognitive Abilities and Labour Market Outcomes

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  • Silke Anger
  • Guido Heineck

Abstract

We contribute to the literature on the relationship between cognitive abilities and labour market outcomes providing first evidence for Germany. In particular, cross-sectional data from the German Socio-Economic Panel (SOEP) are used, which include two measures of cognitive ability, one test of fluid mechanics (speed test) and another test of crystallised pragmatics (word fluency test). We find a positive relationship between cognitive abilities and economic activity, as workers with high ability test scores are less likely to be unemployed. In addition, results from Mincer-type OLS and 2SLS regressions suggest that mechanics abilities are correlated with wages in a significantly positive way for West German workers, even when educational attainment is controlled for, whereas pragmatics of cognition do not affect earnings significantly. However, we also find that ability and education are inseparable determinants of earnings, which confirms findings of recent studies for other countries.

Suggested Citation

  • Silke Anger & Guido Heineck, 2006. "Cognitive Abilities and Labour Market Outcomes," Discussion Papers of DIW Berlin 655, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp655
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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.55666.de/dp655.pdf
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    References listed on IDEAS

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    1. Jeffrey S. Zax & Daniel I. Rees, 2002. "IQ, Academic Performance, Environment, and Earnings," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 600-616, November.
    2. Patrick Royston, 2004. "Multiple imputation of missing values," Stata Journal, StataCorp LP, vol. 4(3), pages 227-241, September.
    3. Neal, Derek A & Johnson, William R, 1996. "The Role of Premarket Factors in Black-White Wage Differences," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 869-895, October.
    4. Murnane, Richard J & Willett, John B & Levy, Frank, 1995. "The Growing Importance of Cognitive Skills in Wage Determination," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 251-266, May.
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    Cited by:

    1. David Haardt, 2007. "Cognitive functioning and labour force participation among older men and women in England," Social and Economic Dimensions of an Aging Population Research Papers 222, McMaster University.

    More about this item

    Keywords

    Cognitive ability; earnings regressions; returns to education; ability bias; unemployment probability;

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

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