Which Skills Matter for What Type of Worker? Cognitive Skills, Personality Traits, Hiring Channels and Wages in Bangladesh

Abstract

We use matched employer-employee data representing the formal sector in Bangladesh to provide descriptive evidence of both the relative importance of cognitive skills and personality traits in this part of the labour market and the interplay between skills and hiring channels in determining wages. While cognitive skills (literacy, a learning outcome) affect wages only by enabling workers to use formal hiring channels, they have no additional wage effect. Personality traits do not affect hiring channels, but they do enjoy a positive wage effect. This wage effect differs by hiring channel: those hired through formal channels benefit from higher wage associations with openness to experience, but lower effects of hostile attribution bias. Those hired through networks enjoy higher wages for higher levels of emotional stability, but they are also punished for higher hostile attribution bias—in line with different occupational levels being hired predominantly through one channel or the other. We provide suggestive evidence that employers might use hiring channels differently, depending on what skill they deem important: employers valuing communication skills, arguably observed during selection interviews, are associated with a larger within-firm wage gap between formal and network hires, while the importance of teamwork is associated with a smaller wage gap.