What do employers pay for employees’ complex problem solving skills?

Abstract

We estimate the market value that employers assign to the complex problem solving (CPS) skills of their employees, using individual-level Mincer-style wage regressions. For the purpose of the study, we collected new and unique data using psychometric measures of CPS and an extensive background questionnaire on employees’ personal and work history. The data were collected in 16 firms (23 establishments) in Germany, Spain, South Africa, Denmark, Slovakia, Switzerland, and France in the period 2012–2014. We find significant economic returns to CPS in our sample. One standard deviation higher CPS is associated with 10–20% higher hourly wages. The returns to CPS are sizeable even after controlling for fluid intelligence, suggesting that CPS probably captures skills important for modern production that are beyond what general intelligence tests can measure.

Keywords:

• complex problem solving skills
• returns to skills
• wages

Acknowledgements

We would like to thank three anonymous referees for their helpful comments, and André Kretzschmar and Jakob Mainert for their useful suggestions.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. This claim is disputed among the scholars in the field. For instance, Wüstenberg et al. (2012) argue that the MicroFIN and MicroDYN measures of CPS are designed such as to minimize the influence of prior knowledge.

2. We control for country effects even in the correlation tables because we have an international sample with wide cross-country variance of wages. Moreover, certain types of industries which pay high wages cluster by country such as IT firms in Germany. Not controlling for country effects induces spurious relationships between our independent variables and wages.

3. We also find evidence of mild curvature in the returns (not reported here), corresponding to about 1–2% difference in returns between high CPS individuals and low CPS individuals.

4. It may be argued that grades serve as a signal of ability and for this reason are important for employers. While this may be true, school grades are not a final record of academic performance of most individuals in our sample.

Additional information

Funding

This work was supported by the European Union’s Seventh Framework Programme for research, technological development and demonstration [grant agreement 290683] for the project LLLight’in’Europe.

Notes on contributors

Peer Ederer

Peer Ederer is a professor and director of the HUGIN Centre at Zeppelin University.

Ljubica Nedelkoska

Ljubica Nedelkoska is postdoctoral fellow at the Center for International Development at Harvard University.

Alexander Patt

Alexander Patt is a research fellow at Leuphana University.

Silvia Castellazzi

Silvia Castellazzi is a PhD candidate at Zeppelin University.