Social skills get you a higher wage
Sweden is a dream country for social scientists because they tend to have the most comprehensive data on everything from individual portfolios to taxes to cognitive and social skills. The Swedish twin registry is so important for social sciences that it once led me to exclaim that you can do almost anything with them. Now, there is another study that provides valuable insights for businesses.
Because Sweden has a universal draft, men aged 18 or 19 are tested by the military on both their cognitive skills and their noncognitive skills. While cognitive skills are elicited through a standardized test of reasoning, verbal comprehension, spatial ability, and technical understanding, noncognitive skills are evaluated through a 25-minute interview by a professional psychologist who assesses things like emotional stability and social skills. And because individual tax data is available for researchers, Per-Anders Edin and his colleagues could look at the wages these men earned between ages 38 and 42.
The key result is shown in the chart below. The way to read this chart is as follows. The solid line shows the difference in wages earned by people with higher cognitive skills given a certain level of noncognitive skill. In 1995 comparing two people with the same level of noncognitive skills, the person with higher cognitive skills would have earned some 10.5% higher wages than the person with the lower cognitive skill. By 2010, the person with the higher cognitive skill would have earned some 12% more than the person with the lower cognitive skill. Being smart gives you a c12% advantage in income.
Wage returns for higher skills
Source: Edin et al. (2022)
Now, look at the dashed line in the chart. This shows the incremental return for people with higher noncognitive skills but the same level of cognitive skills. That premium for noncognitive skills has risen from 3% in 1995 to 14% in 2010.
That doesn’t mean that stupid people with good social skills are getting paid more. It means that if you want to get paid well, you need to have high cognitive skills and get a good education. In the past, that used to be enough. Businesses didn’t pay you more if you were a good team player or had good skills in dealing with clients. Today, the situation is altogether different. You still get paid well if you are smart and get a good education. But having good social skills is increasingly valued by employers and rewarded with higher pay. Businesses are increasingly recognising the added value provided by people with good soft skills. And as businesses compete for smart people with high noncognitive skills these employees can demand higher wages.
The caveat to this observation is obvious, though. It was done in Sweden, a famously progressive and social-minded society. The United States, for example, is a much more individualistic society where being a jerk at work is in my experience still tolerated to a larger extent than in Europe. Things are changing there, too, but I would be interested to know if businesses in the United States pay more to smart and nice employees than to smart employees.