The returns to cognitive and non-cognitive abilities in Germany

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provide information on cognition and personality. We are therefore able to apply appropriate panel estimators, random effects regressions and the Hausman-Taylor IV estimator. Our results suggest for wage effects of personality and cognitive abilities with differences by gender and by specification. The results show that the FFM traits, locus of control and reciprocity are either linearly or non-linearly related to workers’ wages, and do mainly not change with tenure. Cognitive abilities mainly affect the wages of males but not female workers. While the findings for the FFM indicators are sensitive to model specification and the respective estimator, there is one robust result across gender, all specifications and estimators applied: Individuals who score high in the external locus of control scale earn on average less than their counterparts who have lower scores. These differentials are substantial: In the linear models for males, the effects of external locus of control are twice as large as the effects of workers’ cognitive abilities. Furthermore, compared to workers who score in the bottom 25% of the LOC scale, there is a wage penalty of up to 20% for workers who score in the top 25% of the scale. To sum up, the results of our analysis reveal that personality is an important predictor of earnings also in Germany, even if a large set of socio-demographic and job-related characteristics and, more relevant, cognitive ability scores are included. Despite the more strongly regulated labor market and the less meritocratic society, the effect of locus of control is of comparable size if not larger than revealed by similar studies for the US. In contrast, cognitive abilities affect only the earnings of males. Quantitatively, these findings further suggest a relatively greater importance of particularly an external locus of control compared to cognitive abilities. While there a no simple straightforward policy implications, we conclude with Borghans et al. (2008) who claim that “…personality traits are more malleable than cognitive ability over the life cycle and are more sensitive to investment by parents and to other sources of environmental influences at later ages than are cognitive 28
traits” (Borghans et al., 2008, p. 4). Put differently, both prior research and our findings may point to the necessity for social policy to put greater emphasis on abilities other than or in addition to cognitive skills, and to effectively attain greater achievement by investing in personality traits. 29
Page 1 and 2: The Returns to Cognitive Abilities
Page 3 and 4: furthermore needs some familiarity
Page 5 and 6: far from unanimous (see below) and
Page 7 and 8: Locus of Control and Reciprocity An
Page 9 and 10: also employ the FFM taxonomy of per
Page 11 and 12: for social and economic success. In
Page 13 and 14: solving tasks that are related to n
Page 15 and 16: where y i is individual i’s gross
Page 17 and 18: measuring the underlying scale. Wit
Page 19 and 20: a temporary job, a part-time job, a
Page 21 and 22: Plug, 2006). Agreeable individuals
Page 23 and 24: consequences from actions beyond th
Page 25 and 26: We argued above that a worker’s c
Page 27: translate into earnings differentia
Page 31 and 32: Cebi M. Locus of Control and Human
Page 33 and 34: Jang KL, Livesly WJ, Vernon PA. Her
Page 35 and 36: Semykina A, Linz SJ. Gender differe
Page 37 and 38: Table 1: Log hourly wages regressed
Page 39 and 40: Table 3: Wages and non-linearities
Page 41 and 42: Table 4: Wages effects of cognitive
Page 43 and 44: Appendix Table A2: Descriptive stat
Page 45 and 46: 11 We calculate the Inverse Mills R

The returns to cognitive and non-cognitive abilities in Germany

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