The different returns to cognitive ability in the labor and capital markets

Published: 31 March 2023

Author: Spencer Bastani, And Kristina Karlsson, And Daniel Waldenström, And

We investigate the returns to cognitive ability in the labor and capital markets. Using population-wide Swedish military enlistment data and administrative tax records, we find that cognitive ability is much better at predicting capital income than labor earnings. The difference is almost a factor of three and remains substantial even after controlling for education, occupation, savings, inheritance, and parental background. Moreover, ability is significantly positively correlated with wealth returns. Our results provide new insights into why inequality in capital income is greater than in labor income and shed light on the drivers of economic mobility.


Working paper 2023:8 is written by Spencer Bastani (IFAU), Kristina Karlsson (Uppsala university) and Daniel Waldenström (IFN). For further details please contact Spencer