Sang-Hyop Lee
University of Hawai'i at Manoa

Abstract

A wage determination model is developed which shows that balance among abilities has distinct effects on individual earnings. The model predicts that individuals in jobs that require a comparative advantage in a wide range of abilities will bear a cost when their mix of abilities is not balanced. It also predicts that these individuals in "multi-skill" jobs enjoy a higher return to their overall ability than individuals in jobs that require a specific, singular talent. The predictions are tested using test scores data from the National Longitudinal Survey of Youth. The results show that individuals with balanced test scores are more likely to choose jobs in managerial, sales, and clerk occupations. In these occupations, individuals with more balanced test scores receive substantially higher earnings than those with unbalanced test scores. On the contrary, individuals with high spread of test scores are more likely to choose jobs in professional, craft, and operator occupations, although the spread does not significantly affect earnings in these occupations.

Key words: heterogeneous ability, occupational choice, cognitive skills, test scores
JEL Classification: J23, J24, J31