Thursday, February 13, 2014

What Skills Reward Improvement with the Highest Payoff?


I have sometimes looked at the monetary payoff for skills by running correlations between skills and earnings. This time, to use the most recent skill ratings (from O*NET release 18) and earnings estimates (for May 2012) available from the Department of Labor, I decided to use a different technique.

In the O*NET database, occupations are rated on 35 skills on a scale (representing level of mastery) that ranges from 0 to 7. (Actually, the highest rating of any occupation on any skill is 6.1.) I divided the occupation-skill combinations into five levels of skill:

Level
Rating
Example
1
less than 2
Barbers, rated 1.1 on Equipment Selection
2
2 or greater but less than 3
Librarians, rated 2.4 on Mathematics
3
3 or greater but less than 4
Veterinarians, rated 3.8 on Learning Strategies
4
4 or greater but less than 5
Hydrologists, rated 4.2 on Writing
5
5 or greater
Physicists, rated 5.6 on Active Learning

Then, within each skill level, I computed the weighted average earnings of all the occupations linked to each skill. To calculate a weighted average, I multiplied the workforce size of each occupation by its median earnings, summed these products, and divided this sum by the sum of all the workforces. This gave me an average dollar figure for each skill that gave greater weight to occupations with larger workforces.

Next, I calculated the difference between the earnings at levels 1 and 2, levels 2 and 3, and levels 3 and 4. (I did not look at the difference between levels 4 and 5 because only 17 of the 35 skills are rated that high for any occupation.) Finally, I computed the average of those three differences.

By using this approach, I achieved a measure of what difference in earnings is achievable by an increase in skill level. These are the skills that showed the largest differences:

Skill
Average Boost in Pay
Complex Problem Solving
 $26,930
Judgment and Decision Making
 $24,398
Active Learning
 $23,196
Time Management
 $23,159
Science
 $22,463
Negotiation
 $21,789
Coordination
 $21,367
Systems Analysis
 $21,329
Writing
 $20,929
Management of Personnel Resources
 $20,864

This approach is actually not that different from a correlation, because it attempts to show how an increase in one factor (skill level) is associated with an increase in another factor (pay). However, this approach has the advantage of showing you in dollar terms what it would mean to improve your mastery of a skill.

Of course, getting into a higher-paying occupation often is not simply a matter of improving skill. You may need some credential that reflects your higher level of skill: for example, a college degree, a certificate, or journeyworker status within a trade. But your achievement of this credential depends on your improving certain skills. And it makes sense to focus on the credentialing programs that boost the highest-payoff skills.

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