The Value of Soft Skills in the Labor Market.

• Author: Deming, David J.
• Position: Research Summaries

Economists are increasingly focused on the importance of so-called "soft skills" for labor market success. The evidence is overwhelming that these skills--also called "non-cognitive skills"--are important drivers of success in school and in adult life. (1) Yet the very term soft skills reveals our lack of understanding of what these skills are, how to measure them, and whether and how they can be developed. And the term "non-cognitive" is simply used to mean "not predicted by IQ or achievement tests."

The job market is way ahead of the ivory tower in emphasizing soft skills. Employers frequently list teamwork, collaboration, and oral and written communication skills as highly valuable yet hard-to-find qualities in potential new hires. (2) A 2017 survey by the National Association of Colleges and Employers found that "ability to work in a team" was the most commonly desired attribute of new college graduates. Teamwork was followed closely by written and verbal communication skills and was listed ahead of problem-solving skills, analytical/quantitative skills, and other attributes that are emphasized in formal educational settings. (3) Yet, until recently, economists have had very little to say about the importance of soft skills in the workplace.

In contrast, a large body of work in economics focuses on the importance of cognitive skills for wage determination. These studies typically track survey respondents from youth to adulthood and show that a "pre-market" test of cognitive skills is strongly predictive of labor market success, even after conditioning on family background, years of completed education, and other important factors. (4) At the macro level, advances in information technology and computerization that began in the 1980s increased the return to cognitive skills and years of completed education, which contributed to growing inequality at the upper end of the wage distribution in the 1980s and 1990s. (5)

STEM Jobs and the Slowdown in Demand for Cognitive Skills

While cognitive skills are still important predictors of labor market success, their importance has declined since 2000. An important recent paper finds significantly smaller labor market returns to cognitive skills in the early and mid-2000s, compared with the late 1980s and early 1990s. (6) It compares the returns to cognitive skills across the 1979 and 1997 waves of the National Longitudinal Survey of Youth (NLSY)--the same survey that was used to document the importance of cognitive skills in several influential early papers. (7) In a 2017 study, I replicate this finding and also show that returns to soft skills increased between the 1979 and 1997 NLSY waves. (8) Moreover, recent findings suggest that employment and wage growth for managerial, professional, and technical occupations stalled considerably after 2000, which the researchers argue represents a "great reversal" in the demand for cognitive skills. (9)

The slow overall growth of high-skilled jobs in the 2000s is driven by a decline in science, technology, engineering, and math (STEM) occupations. STEM jobs shrank as a share of all U.S. employment between 2000 and 2012, after growing strongly between 1980 and 2000. Tis relative decline of STEM jobs preceded the Great Recession. In contrast, between 2000 and 2012 non-STEM professional occupations such as managers, nurses, physicians, and finance and business support occupations grew at a faster rate than during the previous decade. The common thread among these non-STEM professional jobs is that they require strong analytical skills and significant interpersonal interaction. We are not witnessing an end to the importance of cognitive skills--rather, strong cognitive skills are increasingly a necessary--but not a sufficient--condition for obtaining a good, high-paying job. You also need to have social skills.

Between 1980 and 2012, social skill-intensive occupations grew by nearly 12 percentage points as a share of all U.S. jobs. Wages also grew more rapidly for social skill-intensive occupations than for other occupations over this period. In contrast, both employment and wages grew more slowly for occupations with high math but low social skill requirements, including many STEM jobs. Directly comparing the returns to social skills in the NLSY 1979 and 1997 surveys, I find that social skills are a significantly more important predictor of full-time employment and wages in the more recent cohort. Employment and wage growth have been especially strong for professional jobs that require both analytical and social skills. In today's economy, workers must be able to solve complex problems in fluid, rapidly changing, team-based settings. (10)

Why Are Social Skills Important in the Labor Market?

Why are social skills valued in the labor market, and why have they become more important in recent years? One possible cause is technological change. In a review article about the history of workplace automation, David Autor argues that new technologies generally increase the importance of skills and tasks for which there is still no good substitute. Machines are generally quite good--much better than humans--at performing routine, codifiable tasks according to a set of explicit rules. However, people are still much better at open-ended tasks that require flexibility, creativity, and judgment. Often we perform these tasks with great skill despite lacking any explicit understanding of "rules," as when we divine the motives of a person we just met, or when we quickly determine whether it is appropriate to laugh at an of-color joke. (11)

Social...