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.
[I]ncome distributions have strong right skew. In all Western countries, top income shares have been steadily rising since the 1980s, with the 1 per cent highest earners receiving 9 per cent of national income in Sweden and even 20 per cent in the United States—excluding capital gains[.]
Note the subtlety that while very high levels of IQ translate on average to continued improvement in economic and non-economic outcomes, that lots of people who achieve high levels of economic and non-economic outcomes are people of lesser IQ who are at the top of the bell curve for outcomes for a given IQ.
Within the bottom 50% of economic outcomes the correlation of IQ and economic results, rather than being monotonic, hits minimum IQ at the 20th percentile of income and starts rising below that point.
The range between the 50th and 90th percentiles of economic outcomes seems to be the most meritocratic.
Then, there is a leveling off in the top 10%.
You might reasonably have guessed in the absence of data, that the top 10% of economic outcomes would be extremely meritocratic because lots of jobs paying in the top 10% are highly skilled in a way that imposes a de facto minimum IQ, while "faking it" might be easier in middle class jobs that are less skilled. But that doesn't seem to be the case until you get to jobs in the bottom half of the wage distribution.
On the other hand, as someone who regularly deals with lots of people in the top 1% of income as a lawyer, I am well aware that they are not predominantly at or close to the top 1% of IQ, although they are rarely entirely stupid either. The epithet used to be that: "A students work for B students in companies owned by C students", although grade inflation has distorted that a bit over time.
A plateau at €60,000 per year is lower than I would expect, although given the relatively egalitarian economy and small scale of the Swedish economy, it is somewhat harder to put a finger on what is going on as it differs in lots of material ways from the U.S. economy with which I am much more familiar.
There is also no doubt that non-IQ personality factors like "work ethic", conscientiousness, and extraversion, play a part in economic outcomes as well. But, I'd would be surprised if those factors eclipsed IQ at the 10th percentile of income and would be less surprised if the administrative and professional sector of Sweden was less meritocratic than lower level employment.
For example, I have only a dim idea of how important family wealth is to adult income in Sweden, even though I'm much more familiar with this in the U.S.
It is also possible that somewhere in the top 10% that wage data ceases to be an accurate measure of economic returns to ability, with profits from businesses that you own and royalty income, for example, becoming more relevant than mere wages for this group of workers. In the U.S. this tendency is driven, in part, by tax law in addition to the fundamental economics, in ways that I understand fairly well, but again, I don't know how this plays out in Sweden and don't trust my intuition about a situation that in the U.S. that is heavily driven by U.S. tax laws to generalize to Sweden which has very different tax laws.
The paper's own theoretical prediction suggests that the actual data best correspond to a situation in which there is an extremely "noisy" relationship between IQ and income:
The sample size is 59,000 people, which is decent, but the top 1% is still only about 590 men (the study is based upon military entrance exams so it doesn't address income to IQ relationships for women). Also, top income may partially be suppressed by the fact that the cohort of men involved have not yet reached their peak earnings years. The sample is as follows:
Our analysis includes men who joined the labour force between 1991 and 2003 (median 1993). In total, 670,203 men, aged 18–60, entered the labour market in this period to be fully employed for at least 1 year. Cognitive-ability scores are available only for Swedish men who had the obligation to undergo military conscription. We subset on men who took a compulsory conscription test at age 18–19 during 1971–1977 or 1980–1999, years in which ≥90 per cent of each cohort enlisted (94 per cent on average). Enlistment became less comprehensive after 1999 and dropped substantially until its abolition in 2010. We focus on multi-year career success for those men for which we observe 11 years of labour market participation centred around the age of 40 (see below). This leaves us with a full census of 59,387 Swedish-born men for whom we observe a balanced 11-year panel of annual labour-market success.
Cognitive ability is on a scale of 1-9 with a median of 5, a mean of 5.45, and a standard deviation of 1.98. About 30% of the sample had scores of 7 and above, and about 15% has scores of 8 and above. So the plateau in the top 10% of income earners embraces around the top 25% by IQ.
The distribution of wages has a long tail at the high end.
The distribution of the underlying quantities compared is as follows:
The comments to the Marginal Revolution post from a person identified only as "M" discusses the related issue of higher incomes in urban areas notes some sources for further reading:
https://www.eurekalert.org/news-releases/977543
- "Benefits of big city life – only for the elite - Urban scaling laws arise from within-city inequalities"and previously
https://www.eurekalert.org/news-releases/629397
- "Big cities feed on their hinterlands to sustain growth" - "Their research, published in Science Advances, shows that big cities feed on their hinterlands to sustain growth, thereby escalating the urban-rural divide in economic prosperity and individual life chances. Individuals who leave small areas for large cities are better educated and have higher cognitive abilities than those who stay. These findings provide a more nuanced account for the reasons behind the increasingly uneven economic geography observed in many countries, with growing levels of inequality between urban and rural areas."Urban superlinear scaling in large cities mostly caused by, and benefits to, high talented individuals. Not a lossless phenomenon for the rest of the country, so extending largest cities, although not zero-sum, generates fewer positive sum gains than thought (contra "Extending the most productive cities would be the way to most strongly boost national living standards").
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