Cognitive abilities and earnings – first evidence for Germany

Abstract

We provide first evidence on the relationship between cognitive abilities and earnings in Germany using data from the German Socio-Economic Panel (SOEP) Study. The estimates suggest that mechanics abilities are positively related to wages of West German workers, even when educational attainment is controlled for. Pragmatics of cognition are not related to earnings. In line with studies for other countries, we find that ability and education are inseparable determinants of earnings.

Acknowledgements

We thank Frieder R. Lang, Regina T. Riphahn and Gert G. Wagner for helpful comments and advice, and Anita Kottwitz for excellent research assistance.

Notes

¹This concept is closely related to the distinction of fluid (mechanics) and crystallized (pragmatics) abilities (Cattell, 1987).

²For more detailed information on the SOEP, see Wagner et al. (2007).

³We do not provide analyses for East German workers because of sample size restrictions.

⁴Descriptive statistics are available upon request.

⁵Missing earnings data are imputed using the Stata implementation of the MICE (multivariate imputation by chained equations) method of multiple multivariate imputation (Royston, 2004).

⁶Additional indicators for public sector, blue-collar worker and job tenure are included in supplementary estimations but are not presented, because results do not change substantially.

⁷Given the relatively small sample size.

⁸Results are robust to variations in the ability measures, such as normalized test scores, dummies for test scores above and below average, dummies for test score distribution quintiles and normalized residuals from regressions of ability test scores on age and education.

⁹Yet it is at the 12.5% level.