Above a threshold level of wage, an increase in intelligence is no longer associated with higher earnings

The plateauing of cognitive ability among top earners. Marc Keuschnigg, Arnout van de Rijt, Thijs Bol. European Sociological Review, jcac076, January 28 2023. https://doi.org/10.1093/esr/jcac076

Abstract: Are the best-paying jobs with the highest prestige done by individuals of great intelligence? Past studies find job success to increase with cognitive ability, but do not examine how, conversely, ability varies with job success. Stratification theories suggest that social background and cumulative advantage dominate cognitive ability as determinants of high occupational success. This leads us to hypothesize that among the relatively successful, average ability is concave in income and prestige. We draw on Swedish register data containing measures of cognitive ability and labour-market success for 59,000 men who took a compulsory military conscription test. Strikingly, we find that the relationship between ability and wage is strong overall, yet above €60,000 per year ability plateaus at a modest level of +1 standard deviation. The top 1 per cent even score slightly worse on cognitive ability than those in the income strata right below them. We observe a similar but less pronounced plateauing of ability at high occupational prestige.

Discussion

The empirical results lend support to our argument that cognitive ability plateaus at high levels of occupational success. Precisely in the part of the wage distribution where cognitive ability can make the biggest difference, its right tail, cognitive ability ceases to play any role. Cognitive ability plateaus around €60,000 at under a standard deviation above the mean. In terms of occupational prestige, it plateaus at a similar level above a job prestige of 70: The differences in the prestige between accountants, doctors, lawyers, professors, judges, and members of parliament are unrelated to their cognitive abilities.

A limitation of our study is that we do not account for effort or non-cognitive capacities—motivation, social skills, creativity, mental stability, and physical ability (Borghans et al., 2016). Cognitive ability is more relevant for some occupations than for others, and academia, for which it is arguably most relevant, is neither the best-paid nor the most prestigious professional field. Our results thus raise the question to what degree top wages are indicative of other, unobserved dimensions of ability. However, omission of effort and non-cognitive ability from the analysis is only problematic for our conclusions about the relationship between ability and success if there are theoretical arguments to be made that their effects dominate luck in the production of top income and prestige, either because their distributions have many extreme values or if there are strongly increasing returns.

Our analysis, further, is limited to a single country. Sweden may be seen as a conservative testing ground. In countries where higher education is less inclusive, one would expect an overall weaker relationship between labour-market success and ability (Breen and Jonsson, 2007). Namely, less income redistribution and steep tuition barriers to elite colleges may impede the flow of gifted individuals from lower classes into top jobs. On the other hand, higher net wages and greater social status at the top may attract more talent, and greater differentiation in college prestige elsewhere may allow firms to select on cognitive skills among those with a college degree by using elite affiliations as a proxy. Future research on different countries may seek to evaluate to what extent our findings generalize.

Third, we limit our analyses to native-born men. This is an unavoidable restriction of the data (women and immigrants were not enrolled in the military), and it is important to learn whether our findings generalize to the full working population. We invite further research that includes women and citizens from different ethnic backgrounds, and we call for careful adjustments in measuring occupational success for different cohorts in light of marked increases in female labour-force participation over time as well as in the share of the immigrant workforce and the varying disadvantages they face along different career paths in many countries. Such research could also explore potential variation in meritocracy regimes across social groups, connecting debates on gender equality and integration to quantitative studies of the relationship between success and ability.

Finally, our analysis was descriptive in nature and did not assess the proposed theoretical mechanism. An additional mechanism that may drive the plateauing of the success–ability relation at high wages is that brighter individuals select into more poorly remunerated occupational groups, even if within these groups the brightest are rewarded the highest wages. If these worse-paying jobs are of higher prestige, this could explain the weaker patterns we observed for the relationship between wage and occupational prestige. While we could not effectively explore the operation of this possible mechanism, future studies may be able to disentangle competing mechanisms through longitudinal analysis of educational and labour market trajectories.

Recent years have seen much academic and public discussion of rising inequality (e.g. Mankiw, 2013; Piketty, 2014; Alvaredo et al., 2017). In debates about interventions against large wage discrepancies, a common defence of top earners is the superior merit inferred from their job-market success using human capital arguments (Murray, 2003; Mankiw, 2013). However, along an important dimension of merit—cognitive ability—we find no evidence that those with top jobs that pay extraordinary wages are more deserving than those who earn only half those wages. The main takeaway of our analysis is thus the identification, both theoretically and empirically, of two regimes of stratification in the labour market. The bulk of citizens earn normal salaries that are clearly responsive to individual cognitive capabilities. Above a threshold level of wage, cognitive-ability levels are above average but play no role in differentiating wages. With relative incomes of top earners steadily growing in Western countries (Alvaredo et al., 2017), an increasing share of aggregate earnings may be allocated under the latter regime.