The effect of non-cognitive skills on wage growth - the role of occupations and firms

• Applicant: Professor Dr. Peter Haan
• Subject Area: Economic Policy, Applied Economics
• Term: since 2026
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 581026568

The aim of this research agenda is to analyze the effect of non-cognitive skills on individual wage growth and earnings trajectories across occupations and firms, and to quantify how returns to these skills vary with occupation- and firm-specific skill requirements. We also examine how non-cognitive skills affect occupational choices over the working life and analyze the potential of education policies and tax-and-transfer system reforms to support wage growth. In doing so, our research contributes to the broader literature on heterogeneity in earnings and the evolution of wage growth and inequality. In contrast to prior work that focuses primarily on the role of social skills, we extend the analysis to a multidimensional set of non-cognitive skills by additionally including diligence and resilience, both with respect to wage returns and requirements on the occupational and the firm level. One central input for all analyses is a novel linked data source: the SOEP-ADIAB which combines rich survey measures of non-cognitive skills with administrative social security records, including complete employment and earnings histories, occupational identifiers, and information on firm characteristics such as wage structure and workforce composition. The proposal is structured in three closely related projects. Project 1 develops new empirical measures characterizing differences in work environments and skill requirements at the occupation and firm level. We use the German Qualifications and Career Survey (BIBB/IAB and BIBB/BAuA Employment Surveys) and the BERUFENET expert database, extending existing methodological approaches to operationalize task-content information. Additionally, we construct measures of workplace heterogeneity using firm-level information on workforce composition from the SOEP-ADIAB. In Project 2, we use the SOEP-ADIAB data to estimate the earnings returns to different measures of non-cognitive skills, and their interaction with occupation- and firm-specific skill requirements. For identification we exploit transitions between occupations and firms to isolate individual and worker-firm fixed effects. We extend prior literature by jointly examining three non-cognitive skill dimensions and providing novel evidence on the role of workplace requirements at the firm level. In Project 3, we develop and estimate a structural life-cycle model of occupational choice to study the effects of non-cognitive skills on life-time employment, earnings and income. The model incorporates learning about the value of non-cognitive skills over the life-cycle and combines features like household dynamics and labor market frictions to accurately capture observed patterns in earnings trajectories and labor supply behavior. Based on this model, we conduct policy simulations to quantify how education policies and tax-and-transfer reforms can support wage growth and improve lifetime earnings for individuals with different non-cognitive skill profiles.

• DFG Programme: Research Grants
• International Connection: United Kingdom
• Cooperation Partner: Professor Dr. Richard Blundell