General competencies or certificates? Wage determination for complex tasks in Germany
Comparative studies show that in Germany there is a particular strong link between the educational system and the labour market. Allmendinger (1989) points out that the German educational system is highly stratified and standardized with nationwide quality standards facilitating employers to “rely on credentials to represent skill content reliably” (Müller & Shavit, 1998, p. 7). Germany’s dual vocational training system equips individuals with occupation specific skills and certificates play an important role: they indicate a specific set of skills to employers allowing them to allocate persons to corresponding jobs (Müller & Shavit 1998).
However, it is rather unclear which role general cognitive skills play on the German labour market. According to the OECD, skills like numeracy, literacy and problem solving are key-information-processing skills which “provide a foundation for effective and successful participation in the social and economic life of advanced economies” (OECD, 2013a, p. 52). There exists a huge body of evidence documenting that those skills are linked to full-time-employment and earnings as well as to individuals’ participation in community groups and voluntary activities (OECD & Statistics Canada, 2011). From an economic perspective referring to Becker’s (1964) human capital approach, skills are acquired on-the-job or by attending school. Education is regarded as an investment into an individual’s human capital and is rewarded on the labour market with higher earnings. In a competitive market wages are an indicator of individual career success depending on one’s abilities and competencies. To empirically analyse individual investments and rewards, Mincer (1974) proposed a simple regression model that empirically takes into account the human capital in the form of number of years spent in different educational tracks. However, in the last couple of years researchers demonstrated that replacing the ‘years of schooling’-variable by numeracy and literacy competency scores adds variance to the prediction of wages in the classical Mincer regression (e.g. Charette & Meng, 1998; Hanushek et al., 2013).
Referring to the task approach researchers demonstrated that wages are not only influenced by individual’s skills, but also by job tasks and requirements. Autor and Handel (2013) revealed that “abstract problem solving and creative, organizational, and managerial tasks” (p.S70) are linked to higher earnings than manual or routine tasks.
Consequently, both cognitive skills and tasks requirements should have an impact on employees’ earnings. In our paper, we would like to investigate if there is an additional wage premium for skills and educational certificates when performing complex tasks. Evidence for this interaction hypothesis is provided by Gottfredson (2004) who pointed out that “the advantages conferred by higher levels of g [general cognitive skills] are successively larger in successively more complex jobs, tasks, and settings” (p. 176). Meta-analytical findings could also find evidence for this idea (Salgado et al. 2003).
We would like to investigate interaction effects for skills and complex task requirements and certificates and tasks requirements. Since the German labour market relies strongly on certificates we hypothesise to find interactions mainly for educational certificates and complex tasks.
The analyses are conducted using the German PIAAC data set 2012. The data set includes survey respondents’ test scores on literacy and numeracy as well as information on education, sociodemographic characteristics, job requirements, occupations on a two-digit code according to ISCO08 and hourly wages. For our analyses, we focus on numeracy as the core cognitive skill because numeracy test items require reading as well as mathematical and reasoning competencies and therefore represent broader cognitive skills.
We extend the Mincer regression model taking into account all ten plausible values for numeracy skills, educational certificates, tasks requirements and their interaction effects. In addition, we estimate robust standard errors, clustering for occupation categories.
Both numeracy as the core cognitive skill and complex task requirements are assessed on an individual level. As there is no clear conceptualization of task complexity, three indicators are used to represent this construct. The first one consists of one item dealing with the frequency of complex problem solving at work. This is expected to be a key requirement in a complex working environment. Matthes et al. (2014) argue that autonomy is an important indicator of demanding working conditions because “autonomy brings with it a whole new set of tasks, such as defining goals, organizing the work necessary to achieve these goals” (p. 279). Autonomy means that employees have the freedom to decide about the order or the way they perform their job tasks. Higher cognitive skills should facilitate self-management and goal achievement. Our second indicator for complex tasks is represented by three items regarding job autonomy. Finally, interactive tasks comprise communication, conflict-management and cooperation in different situations. Dealing with people frequently includes solving conflicts and interpersonal problems. Therefore, we used three items regarding social interaction as a third complexity dimension. For the Mincer regression model, several additional socio-demographic control variables like gender, working experience, economic sector and educational certificates are taken into account.
First, we confirm the results found by Hanushek et al. (2013). We see a significant incremental effect numeracy skills have on employee’s earnings beyond a set of control variables and educational certificates in Germany. However, as expected, wages are strongly influenced by educational certificates. Complex task requirements like problem solving, autonomy and social interaction explain additional variance in wages. Interaction effects could mainly be revealed for complex tasks and educational certificates. Consequently, in Germany certificates and cognitive skills are important impact factors for wages, but there is no wage premium for cognitive skills when dealing with complex task requirements. Apparently, German employers rely strongly on educational certificates and less on individual’s cognitive skills and competencies which means that they could improve the way they use individual’s cognitive potential to enhance productivity.
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