Short-term earnings mobility in the Canadian and German context: the role of cognitive skills

Ashley Pullman,Britta Gauly,Clemens M Lechner

doi:10.1186/s12651-021-00292-2

Abstract

It is well-established that human capital contributes to unequal levels of earnings mobility. Individuals with higher levels of human capital, typically measured through education, earn more on average and are privy to greater levels of upward change over time. Nevertheless, other factors may have an incremental effect over education, namely cognitive ability and the skill demands of employment. To deepen insight into whether these aspects contribute to earnings mobility over a four-year period, the present study examines positional change in Canada and Germany—two contexts typified as examples of liberal and coordinated market economies. A series of descriptive indices and relative change models assess how different measures of human capital are associated with earnings mobility. The results indicate that, while individuals with higher cognitive skills experience greater earnings stability and upward mobility in both countries, there is only an incremental effect of skills on mobility in Germany once we account for educational credentials. The results also provide evidence on the role of skill demands for earnings mobility; in both countries, advanced skills at work are associated with greater short-term mobility, even while controlling for cognitive ability and other factors. Together the results showcase how longitudinal data containing detailed measures of human capital allow for deeper insight into what facilitates earnings mobility.

Highlights

IntroductionEarnings inequality has increased in many countries, including Canada and Germany
Over the past decades, earnings inequality has increased in many countries, including Canada and Germany
Cognitive skills generally increase with higher education levels, they vary at each level (OECD 2013a); as an example, not all individuals with a bachelor’s degree have higher cognitive skill levels compared to those who only hold a high school diploma

Summary

Introduction

Earnings inequality has increased in many countries, including Canada and Germany. (Schultz 1975, 843) and “steepens age-earnings profiles” (Becker 1962, 29) In this sense, human capital is deemed to provide greater adaptability, ability, and/or opportunity to favorably navigate changing economic circumstances in ways that lead to positive earnings mobility. The study of cognitive skills may capture aspects of human capital not acquired within the school context and, not reflected in educational credentials. In this sense, cognitive skills may become more relevant for earnings and earnings mobility over the course of an individual’s working life (Altonji and Pierret 2001). Higher credentials may provide opportunities for earnings mobility through access to jobs with specific characteristics, such as employment with higher skill use and demand, factors that are associated with cognitive skills (OECD 2013a)

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Conclusion