The Value of Complementary Coworkers


So at the Growth Lab we are very
interested in understanding why some countries are richer than others; why
some cities grow faster than others; what is it that makes people productive.
That’s the essential question that we’re- trying to ask. Now one of the
things that we started looking at was how people actually organize themselves
to become productive because one of the most salient features of today’s
production is that we work in teams. We have very large teams working together
to build very complex products. So why do we do that? Well, one way to think of it
is that there’s nowadays so much knowledge in the world that if you would
have to study everything and cram all of that knowledge in your head, it would
take more than a lifetime to do so. So what did we do? We actually started
dividing this knowledge across more and more people: we created specialists. So by dividing knowledge across people, we solve the problem that humans have only
a limited cognitive capacity but that there is a whole lot of knowledge that
we want to use. At the same time, we created a problem because no single
person can nowadays create any of the complex products that we routinely want to create. So, that’s why we started looking at teams,
and what we were particularly interested in is how does the specialization of one
person affect the specialization of another person? Or, better, how do
the skills of one person affect the value of the skills of other persons? And
to do so, we relied on a very large data set from Sweden which had the
administrative records for the entire population of Sweden, some 9 million
people, for 10 years. In those data, we see not just what people do at work–so we
know their occupation, we know their wage, we also know where they work, so who is
their employer–but we also know exactly what they studied. So we know the exact
skills that people acquire throughout their educational life.
Now what that allows us to do is to see how the educational specialization of one person affects the wages of other people in the
establishment. So the main idea is that if I become very specialized, then there
are a lot of skills that I don’t have myself, and I will have to rely on my
co-workers to provide those skills. So what we wanted to know is which
education are complementary to one another and which educations can
substitute for one another? And to do so, we started looking at who works together,
and the idea behind that is simple: firms actually know which educations would
complement each other because what they need to do is they need to hire a team
of workers who have all the skills they require to produce their output. So by
looking at who firms combined into teams, we get an
idea of which educational backgrounds would be complementary to one another.
And by looking at which educations allow you to do the same jobs, we
could get a good idea of which types of educations would allow workers to
substitute for one another. So the idea behind the latter is that, if two people
can carry out the same tasks–so if two people can go into the same occupations–then their skills are probably substitutable for one another. And turned
out that those two quantities are extremely important when it comes to
careers and wages of individuals. Having a lot of complementary co-workers
increases your wage; having a lot of substitutable coworkers–so workers who
can substitute you at work–tends to decrease your wage. It is also the case
that having a lot of complementary co-workers means that you are more
likely to stay longer with that same firm, and having a lot of substitutes
among your co-workers means that you’re more likely to leave earlier. So for
instance, the urban wage premium: if you work in a large city, you earn a higher
wage. People have estimated that for each doubling of the city size, we just go up
by about 5%. Now what the research shows is that this wage premium
is only earned by workers who actually find complementary co-workers in a city.
So workers who find a lot of complementary co-workers in the city, who use the city to find the right team to work in, they actually earn urban wage
premium of nine percent. So if the city size doubles, wages go up by nine percent for
this category of workers. Workers who do not find any complementary co-workers in
the city, they also hardly get any benefits from
working in a large city. For them, wages go up by only one percent for each time
the city size doubles. So this benefit of having complementary coworkers
it doesn’t just determine the benefits of working in a large city or working in
a large establishment, it actually also determines the value of your own skills,
and I think this is the single most important point of the paper. What we
found is that in Sweden, on average, people with a college degree earn about
60% more than people who only have a primary school degree.
However, this very much depends on how many complementary co-workers these
people have. So college-educated workers with many complementary co-workers
around them, they earn a premium of 90% over primary school educated
workers. Whereas people who have a college degree but hardly any
complementary co-workers, their wages are similar to workers who only have a
secondary degree, so they get hardly any return to their education. So this
suggests–overall this suggests–that it’s not just important what kind of skills
you acquire in your life, but also who you find to combine those skills with. So
who do you find to work with? To make the most use of those skills?

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