It’s easy to assume that one’s professional network, the success of the company you work for, or perhaps the wider economic circumstances are the key to securing higher salaries. Research from University College London reminds us, however, that skills are all that really matter.
The researchers found that when we acquire new skills, that’s the most reliable indicator of a rise in our income, with the scale of this rise differing depending on the stage of our career we’re at and the type of skill we’re acquiring. What’s more, people who complete their training before entering the job market are not only unemployed less often but also seem to secure higher wages than those who acquire skills on the job.
Career choices
The researchers explain that we often make a wide range of choices during our careers that affect the outcome of that career. For instance, we decide on the training we do, which jobs to accept, whether to stay or resign, and so on. Each decision makes an impact on our income, and often the true impact unfolds over numerous years.
The researchers developed a mathematical model to try and understand precisely what influences wage growth. They collected data on the labor market outcomes of German male workers over a number of decades, and found that various things impact their earnings, including their inherent ability, their ability to accumulate human capital, and the frequency with which they change jobs across sectors and firms.
The researchers began by unpacking the tasks we perform at work into routine-manual (RM), which are typically repetitive and well-defined procedures that don’t require much skill or training, and cognitive-abstract (CA), which are more creative and technical.
They then classified each occupation according to the predominance of each type of task in order to estimate the returns for each type of skill. This allowed them to estimate the returns of any task-specific experience. The results show that the accumulation of both CA and RM skills can effectively drive wage growth over the course of our careers.
RM skills were found to be most effective at driving wage, and indeed productivity, growth in the early stages of our careers, but once we’ve got a relatively basic set of skills, the impact of RM skills drift towards zero. Then CA skills take over as they take longer to acquire but also have a longer impact on our earnings. Indeed, CA skills typically endure throughout our careers. It is this fundamental difference that tends to result in workers in predominantly CA sectors earning more than those in predominantly RM sectors.
Accumulating skills
An interesting finding to emerge from the study is that skills accumulated before one enters the labor market appear to have a greater impact than those acquired on the job. This impact manifests itself not only in higher wages but also in lower periods of unemployment.
This, in turn, allows those people to acquire more experience in the labor market, which also contributes to higher returns in a self-fulfilling cycle.
It’s also important to note that mobility is also important in terms of higher wages, as incomes appear to rise most when we’re able to move between jobs smoothly and efficiently, albeit these gains seem to be greatest in the early stages of our career.
