Want A higher Salary? Acquiring New Skills Is More Important Than Having Connections

Who doesn’t want to earn more money at work? While some might think “moving up in the world” is all about who you know, a new study finds it’s actually all about what you know. Researchers have found that workers who pick up more job skills and undergo more job training before entering the market generally make more money than their peers.

Professor Jeroma Adda from Bocconi University and Christian Dustmann from University College London examined the immediate returns and long-term benefits of certain decisions workers make when entering the labor market. Their mathematical model, focusing on German workers over several decades, reveals that an employee’s ability level, their accumulation of human capital, and how often they change jobs all impact their earnings.

Specifically, the study found acquiring more skills, both physical and mental, increases a worker’s chances of getting high-paying jobs, receiving better offers from competing companies, and avoiding unemployment.

There are 2 kinds of skills workers can build

Adda and Dustmann split the tasks workers perform into two categories: routine-manual (RM) tasks and cognitive-abstract (CA) tasks. RM tasks involve well-defined and repetitive procedures that require a modest amount of training — such as manual labor on a construction site. CA tasks require more technical and creative capabilities, which workers may acquire in school or through a specialized job training program.

To figure out how much of a return each skill brings, the team classified each occupation according to the type of tasks they perform. Results show that accumulating RM and CA skills over an entire career is the most important driver of salary growth. RM skills contribute more significantly to increases in a worker’s earnings during the first few years of their career.

Once an employee acquires the basic skills they need on the job each day, however, their RM skills no longer help them earn higher wages. Simply put, having routine-manual skills before you start working may help you get the gig, but they don’t help advance your career once you have to learn specific skills for your new job.

CA skills, on the other hand, usually take longer to acquire but have a much longer-lasting effect. The study finds that jobs which focus on CA skills lead to higher average salaries than those in RM sectors. Study authors say cognitive skills are something workers often pick up through training programs before they enter the labor market. In comparison to untrained workers, trained workers generally pick up more CA experience, and that leads to bigger and better job offers.

More skills get you more attention

Researchers add that building up skills in the labor market gets workers noticed, even by people they don’t work with. The more skills people accumulate, the more competitors take notice and consider making an offer to acquire their services. Even after controlling for each participant’s innate abilities, the monetary returns from training programs and apprenticeships continued to stay positive and financially significant.

Another aspect that can impact future earnings is job mobility — or switching to a different company. Moving to a new job typically leads to a significant increase in salary, but only in the early years of someone’s career. More specifically, the biggest jump in earnings takes place during the first job move.

Later on, moving from job to job leads to smaller returns. However, staying in one place may not be a great choice either. The study authors note that workers may encounter lock-in effects, where their job skills and experiences connect to their current job so specifically, that it disincentivizes them from moving to other jobs where those skills don’t quite fit.

“For workers, we learn the longer-term advantages of accumulating CA skills and the substantial returns individuals may obtain from undergoing training, which may not materialize immediately but have a significant impact later in their careers. For policymakers, we learn that returns to experience can generate inefficiency by locking workers into specific sectors, which may disproportionally affect workers who enter the job market during periods of restricted choices, such as recessions,” the researchers write in a media release.

The study is published in the Journal of Political Economy.