Pathways to prosperity: the role of cognitive and non-cognitive skills in employer quality and early career earnings

We analyze the role of cognitive and non-cognitive skills in sorting workers into high-quality training firms and in determining early-career earnings. Using linked student-employer-employee data from Germany (NEPS-ADIAB), we find that adolescents with stronger skills are sorted into more productive, higher-paying firms. To address endogeneity, we exploit local variation in teachers’ science competency as an instrument for students’ mathematics skills. We find sizable causal wage returns to mathematics early in workers’ careers. We also provide evidence of complementarity between social and cognitive skills: returns to mathematics are higher for individuals with stronger interpersonal skills.