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Demand for Social and Cognitive Skills Is Linked to Higher Firm Productivity

Computers are able to do many tasks, but people still outperform them at human interactions and complex decision-making. A new study co-authored by Yale SOM labor economist Lisa Kahn suggests that firms that take advantage of these capabilities by looking for workers with social and cognitive abilities tend to be more successful.

An 1883 diagram of the phrenological view of the brain, published in the People’s Cyclopedia of Universal Knowledge. Source: Wikimedia.

As computers have taken over certain tasks, some people have adapted by cultivating skills that machines lack. For instance, accountants can no longer survive by completing simple tax returns that are easily accomplished with software. Instead, they might help clients deal with complicated tax situations or strategize about financial portfolios.

At the same time, the wage gap between the highest- and lowest-paid workers has widened. One might assume the inequality occurs mainly within companies—say, CEOs earning far more than janitors. But a substantial fraction is due to differences between companies. Some firms, even in the same industry, are paying much higher salaries.

Now, a new study has linked these two trends. In job ads, some companies frequently ask for social and cognitive skills—a combination of skills that computers lack—while other firms posting similar jobs in the same location rarely request such traits. Positions that require those skills tend to pay more. And firms that emphasize social and cognitive abilities appear to perform better, perhaps because they have more effectively complemented machines with human workers.

The results provide more evidence that technology is driving a wedge between people who possess social and cognitive skills and those who don’t, says study co-author Lisa Kahn, a labor economist at the Yale School of Management. Advances such as automation, information technology, and robotics “are really pushing winners and losers in the labor market,” she says.

Kahn and her collaborator, David Deming at the Harvard Kennedy School, wanted to study the capabilities that computers can’t provide. For instance, machines perform poorly on social interactions, such as working with clients, and cognitive tasks, such as making complex decisions. “Computers are really good at an increasingly sophisticated range of things, but they’re still quite bad at being people,” Kahn says.

The researchers also wondered whether firms with higher salaries were taking better advantage of technology to get more out of their employees. “How is it that those high-paying firms are able to pay so much more for the same worker?” she asks.

The team turned to data on online job ads collected by the analytics company Burning Glass Technologies, focusing on professional positions at almost 86,000 companies in the U.S. from 2010 to 2015. The ads had been tagged with more than 10,000 keywords; Kahn and Deming broke job requirements into 10 general categories, such as social skills, cognitive skills, writing, and customer service.

The researchers found surprisingly large differences in how frequently companies requested each skill for similar jobs. Variation between companies accounted for about 30% of all differences in skill requirements, even when controlling for factors such as city, occupation, education, and experience level.

Most job ads didn’t include salaries, so Kahn and Deming looked up average wages for the listed occupations in each metropolitan area. City-occupation pairs in which firms demanded cognitive and social skills more frequently tended to pay higher salaries, the researchers found. The link remained when the team controlled for factors such as cost of living, job type, and other skill requirements.

Finally, hiring workers with social and cognitive skills was connected to the company’s success. Firms that often required those skills were more likely to be publicly traded and had higher revenue per employee. While the researchers did not examine the companies’ production processes, “we do know who they’re asking for,” Kahn says. And the skills being sought are “correlated with how they’re doing as a firm.”

The explanation may be that the companies have hit upon smart combinations of computer and human skills. For instance, a firm could use computers to perform data analytics, then hire salespeople with the cognitive abilities to interpret the information. Or the company might recruit computer programmers with social skills, who can better understand clients’ needs and optimize software accordingly.

The study reinforces the idea that social and cognitive skills can help workers survive in today’s job market. “If you have one of them, and especially both of them, I think it’s very likely that you’re going to be pretty safe from automation for a long time,” Kahn says.

Department: Research