NUMERACY AND ON‐THE‐JOB PERFORMANCE: EVIDENCE FROM LOAN OFFICERS

Martin Brown,Thomas Spycher,Karolin Kirschenmann

doi:10.1111/ecin.12873

Martin Brown, Thomas Spycher + Show 1 more

Open Access

https://doi.org/10.1111/ecin.12873

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Abstract

We examine how the numeracy level of employees influences their on‐the‐job performance. Based on an administrative dataset of a retail bank we relate the performance of loan officers in a standardized math test to the accuracy of their credit assessments of small business borrowers. We find that loan officers with a high level of numeracy are more accurate in assessing the credit risk of borrowers. The effect is most pronounced during the precrisis credit boom period when it is arguably more difficult to pick out risky borrowers. (JEL G21, J24)

Highlights

Employers in a broad range of industries place significant weight on the numerical skills of job applicants when hiring new employees
We study how the numeracy of loan officers relates to the accuracy of their credit assessments of small business borrowers: Are loan officers with high numeracy better able to identify those borrowers who ex post turn out to be risky? With a unique dataset provided by a retail bank we are able to match loan officers’ performance in a standardized numeracy test with data on all loan applications that they process
We provide novel evidence documenting that employees with high numerical skills perform better on the job

Summary

Introduction

Employers in a broad range of industries place significant weight on the numerical skills of job applicants when hiring new employees. Numerical skills are associated with better labor market outcomes among workers (Joensen and Nielsen 2009; Koedel and Tyhurst 2012). These two observations suggest that employees with strong numerical skills are more productive or make better on-the-job decisions. Our analysis focuses on loan officers in a retail bank. We study how the numeracy of loan officers relates to the accuracy of their credit assessments of small business borrowers: Are loan officers with high numeracy better able to identify those borrowers who ex post turn out to be risky? With a unique dataset provided by a retail bank we are able to match loan officers’ performance in a standardized numeracy test with data on all loan applications that they process.

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