Extended abstract

Growing income inequality and the lack of opportunities for those on low incomes is of increasing concern in many developed economies. We use matched employee-employer administrative data from the UK to investigate the importance of soft skills for workers in low-skilled (low wage) occupations. Soft skills have been shown to be important for high-skilled workers (Deming, 2017), young men leavin the military in Swedend (Lindqvist and Vesterman, 2011) and in a randomised experiment in the filed (Barrera-Osoria, Kugler and Silliman, 2020).

We show that both the wage level, and importantly wage progression, of workers in low-skilled occupations are higher in occupations where soft skills are more important. We focus on soft skills that enable workers to work more effectively with their co-workers in team work and problem solving. We rationalize our findings using a model of wage bargaining with complementarity between the skills and abilities of low educated workers and the firm’s other assets. Consistent with this model, returns to these skills are higher in firms that are more innovative or that have a high share of skilled workers. 

We make three main contributions to the literature. First, we highlight the importance of a range of soft skills that facilitate team work and effective interaction with colleagues in the workplace on wage progression in low-skilled jobs (occupations that have no formal educational requirements). The previously literature has largely focused on their importance for high-skilled workers. It has also focused almost exclusively on wage levels, rather than wage progression. Second, we show how the requirements for these interpersonal skills varies across firms, and how this impacts on wages. As far as we are aware we are the first paper to combine occupation level data with firm level data. Previous work has focused primarily on occupation-level analysis of skill requirements. Third, we propose a simple, but novel, theory for why workers in these occupations that have high soft skill, but low formal educational, requirements may be particularly important for the production process, through interacting with the sophistication of the firms other assets.

Paper joint with Philippe Aghion (College de France and London School of Economics), Antonin Bergeaud (HEC Paris), Richard Blundell (University College London).

For further information, please contact giovanna.tramontano@unibocconi.it.