Working Paper: NBER ID: w31674
Authors: Andrew Caplin; David J. Deming; Søren Leth-Petersen; Ben Weidmann
Abstract: Jobs increasingly require good decision-making. Workers are valued not only for how much they can do, but also for their ability to decide what to do. In this paper we measure the ability to make good decisions about resource allocation, which we call economic decision-making skill. Our assessment requires an intuitive understanding of comparative advantage and is motivated by a model where decision-makers strategically acquire information about factor productivity under time and effort constraints. Economic decision-making skill strongly predicts labor earnings in representative samples of full-time workers in the U.S. and Denmark, conditional on education, IQ, numeracy, and other covariates. Economic decision-making skill is more valuable in management and other decision-intensive occupations.
Keywords: allocative skill; decision-making; resource allocation; labor earnings
JEL Codes: D8; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| allocative skill (D61) | full-time labor earnings (J39) |
| allocative skill (D61) | full-time labor earnings in decision-intensive occupations (J31) |
| allocative skill (D61) | full-time labor earnings in non-decision-intensive occupations (J39) |
| allocative skill (D61) | earnings (compared to IQ) (J31) |
| allocative skill (marginal product of attention) (J29) | increased earnings (J31) |