Does it pay to be smart?

Suvi Lokuge


March 10th, 2017

Intelligence is highly valued in our society. But how much is it worth? Suvi Lokuge delves into the intelligence premium and the effect of technology on the value of intelligence.

We live in a world that is obsessed with test scoring and qualifications. University life is a perfect example – the weekly quizzes, assignments and exams looming round the corner are all opportunities to seemingly quantify our intelligence. Welcome to meritocracy, where people are valued based on their intelligence levels [1]. Michael Young predicted this in 1958, but does it actually pay to be smart?


Different abilities, different wages

Take two individuals, Ace and Bob, with the same discount rate (r) – the same levels of patience – but different abilities. Bob has a higher marginal rate of return to schooling than Ace. In other words, Bob is smarter than Ace, and therefore gets more benefit from an additional year of schooling. for Bob, it is worth spending one more year of schooling. For example, perhaps Ace drops out of high school while Bob gets a high school diploma. Consequently, Bob and Ace face different wage-schooling loci. The difference in wages between Bob and Ace is a result of Bob going to school for one more year, and because Bob is smarter [2]. However, it is difficult to determine how much of the wage difference is due to education, and how much is attributed to ability. Regardless, it is certain that higher ability individuals are paid more.


Intelligence in a changing world

The rise of digitalisation, automation and artificial intelligence will all impact the way that intelligence is valued in society, by having a significant impact on the types of work available.

Manual tasks are becoming redundant as technology develops. Routine jobs, irrespective of the skill level, are being replaced by automation (OECD, 2013) [3]. Similarly, high routine jobs are particularly affected by artificial intelligence and digitalisation (Marcolin et al. 2016) [4].

On the other hand, there is an increased demand for low and high skilled tasks. In most advanced economies, there has been an increase in demand for workers in high skilled, non-routine jobs which require ‘workers to be comfortable with working with new information, solving unstructured problems and having strong interpersonal skills’ (OECD, 2016, p.1) [5]. Also, there has been some increase in the demand for workers in low-skilled non-routine jobs, who perform caring and personal services [6].


There is uncertainty if these trends will continue in the future, with the effects of globalisation and demographic change, however there will always be a high premium on problem solving and critical thinking skills. Intelligence is highly valued in our society. We often think of intelligence in terms of academic success, however there are many other types of intelligence, particularly interpersonal skills and critical thinking skills that are worth investing in.



[1] Young, MD 1958, The rise of the meritocracy, 1870-2033: an essay on education and equality, Penguin, Harmondsworth

[2] Massey University. (2010). Human Capital. Retrieved from:

[3] OECD. (2013). OECD Skills Outlook 2013: First Results from the urvey of Adult Skills. Retrieved from:

[4] Marcolin, L., Miroudot, S., & Squicciarini, M. (2016). Routine Jobs, Employment and Technological Innovationi n Global Valued Chains, OECD Science, Technlogy and industry working papers. OECD Publishing, no.2016/01.

[5] OECD. (2016). Automation and independent work in a digital economy. Retrieved from:

[6] OECD. (2016). Automation and independent work in a digital economy. Retrieved from:

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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