The returns to cognitive and non-cognitive abilities in Germany

We argued above that a worker’s cognitive ability and her personality become
observable to the employer only over time. We therefore estimate additional regressions
including variables that interact cognition or personality with tenure. 17
With respect to openness, the HTIV results now suggest that the main effects are not
different from zero but that the joint effects evolve with tenure (Table 4, columns 2 and 4).
The finding for males indicates that in the presence of a significant negative main effect of
being open to experience, this would be outweighed after approximately 5 years, after which
openness would be rewarded in terms of higher wages. Apart from that, none of the
remaining joint effects of FFM traits and tenure play a role once unobservable heterogeneity
is accounted for.
[Table 4 about here]
Individuals’ external locus of control is again penalizing inasmuch as the main
effects imply wage differentials of about 7% for females and 5% for males in the panel
models. On top of that, the results from the interaction terms, albeit not statistically
significant, suggest for male workers that this penalty increases with tenure which might
further reflect some kind of self-reinforcing psychological effects over time. For cognitive
abilities, we find neither main effects nor joint effects with tenure for both males and females
in the pooled OLS models. There however are positive main effects for males in the panel
regressions, implying a wage premium of about 5%.
Robustness checks
We ran additional regressions as robustness checks but do not provide them in detail,
since the results from these exercises are not substantially different from those given above.
First, we estimated our models based on workers from West Germany only. The intention is
to take into account that East Germans tend to have a higher external locus of control
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