Where I mix career information and career decision making in a test tube and see what happens

Wednesday, July 27, 2011

High-Paying and Low-Paying Skills

The book I’m trying to finish right now is the second edition of 150 Best Jobs for Your Skills. (I’ll be able to complete the manuscript once release 16.0 of the O*NET database becomes available.)

Like all of my other books in the Best Jobs series, this one will include a lot of lists. I intend to include some lists that show the relationship between skills and earnings, because readers can learn a lot from considering this relationship. For example, consider readers who have not decided on a particular career goal but want to prepare for a high-income career. These readers can focus on developing these high-payoff skills and feel they are doing something positive toward advancing their careers, even though their goals are not sufficiently crystallized to allow them to work on developing occupation-specific skills.

Recently I came upon an astute analysis of the relationship between skills and earnings. The urban theorist Richard Florida asked his colleagues at the Martin Prosperity Institute (at the University of Toronto) to combine data from the O*NET database about the skill requirements of occupations and data from the U.S Department of Labor about the earnings of occupations, with the goal of seeing how an increase in a skill contributes to an increase in earnings.

For the purpose of their analysis, they collapse several O*NET skills into three large skill categories: analytical skills, social intelligence skills, and physical skills. (I do something similar in my book.) Then they look at how differences in level of skill affect level of income. For example, how do the earnings for occupations requiring the 25th percentile level of analytical skill compare to earnings for occupations requiring that skill at the 75th percentile level? In this case, they found that income increased by $25,600. The difference for analytical skills is charted in the graph below. Note that the x-axis is not a time scale, as it is in most line graphs; it represents a difference in level of skill.

For social intelligence skills, the difference in income is even more dramatic. Occupations at the 75th percentile level average $34,600 more in pay than occupations at the 25th percentile level.

But note how different the effect is when the researchers look at physical skills. It turns out that working in an occupation requiring physical skill at the 75th percentile level actually reduces your income by an average of $13,600 from what it would be at the 25th percentile level.

In his blog on The Atlantic website, Richard Florida uses these findings to explain why the economic prospects of men have stagnated recently. The Great Recession threw many more men out of work than women, and even though men have been getting rehired faster than women, their long-term outlook is not as good.

For the previous edition of 150 Best Jobs for Your Skills, “I computed the average growth and job openings of the jobs with the highest percentage of women and found statistics of 14.3% growth and 59,608 openings, compared to 10.2% growth and 29,421 openings for the jobs with the highest percentage of men. This discrepancy reinforces the idea that men have had more problems than women in adapting to an economy dominated by service and information-based jobs. Many women may simply be better prepared, possessing more appropriate skills for the jobs that are now growing rapidly and have more job openings.” I expect to find a similar discrepancy when I analyze the male- and female-dominated sets of occupations that I assemble for the new edition.

This difference in skills also helps to explain some of the narrowing of the male-female wage gap. In his blog, Florida posts two graphs by the blogger Alex Tabarrok that compare changes in per capita gross domestic product (GDP) to changes in male and female wages. Both male and female wage variations track pretty closely with GDP variations until about 1975, when the male increases level off even as the female earnings continue to climb in parallel with the GDP increases. Although some of this difference can be explained by the increase in female participation in the labor force, a lot is probably caused by the better match between the skills of female workers and the requirements of the new economy.

The lesson here for both men and women is that it pays to develop analytical and social intelligence skills. For greater detail about the skill requirements of high-paying jobs with good outlook, see the next edition of 150 Best Jobs for Your Skills.

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