Bridging the gap: The impact of cognitive and noncognitive abilities on early‐career wages in Taiwan

Abstract

This study investigates how cognitive and noncognitive abilities shape earnings among new entrants to Taiwan’s labor market. Drawing on six waves of the Taiwan Education Panel Survey (TEPS) and its follow-up, TEPS-B, spanning 2001–2014, we capture cognitive ability via comprehensive test scores, and noncognitive abilities are conceptualized across three dimensions: interpersonal skills, self-discipline/diligence, and norm compliance. To address selection into employment, we implement a two-stage Heckman model and estimate wage equations that include controls for education, labor market experience, gender, and family socioeconomic status. Our analysis reveals that incorporating direct measures of ability substantially alters traditional wage determinants: the premiums for education and family background decline by about 60% and 23%, respectively. A one-standard-deviation increase in cognitive ability is linked to a 3.24% wage gain, while self-discipline/diligence and interpersonal skills yield 1.41% and roughly 1% increases. Contrary to expectations, we find limited evidence of strong complementarities between cognitive and noncognitive skills among new entrants, though subgroup analyses suggest these complementarities may emerge as job complexity and experience grow. These findings underscore the need for policies and educational reforms that invest in both hard and soft skills to accurately assess returns to human capital and foster more equitable labor market outcomes.