Finger length

There are now many studies that show how the relative length of the ring and index fingers, known as the 2D:4D ratio, predict a variety of outcomes including susceptability to prostate cancer, sporting prowess, longevity and sexual orientation. It is believed that it reflects exposure to testosterone shortly after conception.
This newspaper article discusses how it predicts earnings amongst traders in the City. It would be interesting to see how it fares in a human capital model on a representative sample of the population. Since it is relatively easy to measure (as biomarkers go), hopefully it will be incorporated into datasets in the future.

Men,women,earnings

The difference in earnings between men and women is one of the most widely commented on statistics about the labour market. It currently features in notices on the back of some Dublin buses. Fame at last. It is also one of the most widely studied by economists. The public and many commentators tend to focus on the unadjusted difference i.e. not controlling for anything.
Economists, of course, want to control for stuff, hours at least as well as education, experience and so on. There are various techniques for looking at this including the well known Blinder-Oaxaca decomposition. "Controlling" for things assumes they are exogenous and if they are not only offers only a partial explanation at best. For example say the "wage gap conditional on educational" is less than the raw, unadjusted gap: so what? As it happens, females do consistently do better than males educationally so conditioning on that will widen the gap, if anything.
Anyway here is the latest news from the Irish labour market on the male-female earnings difference.

Handedness & earnings

In this interview today on WEOL AM 930 (Cleveland, OH) I discuss "The economic consequences of being left-handed: some sinister results", co-authored with Vincent O Sullivan, Journal of Human Resources (2006), XLII (2), 353-374

Losing my religion - or my income?

Further to Liam's post below on religion and savings, here is an earnings equation with denomination using the SHARE data. Catholics fare no worse than Protestants, the reference group. There is a penalty to being a member of the Orthodox faith and an even bigger penalty to being Muslim or "other" religion, I'm guessing that the latter are largely non-Christian faiths emanating from Asia. Atheists are not penalized, in this life anyway. For comparison purposes I have included the coefficient on just one of the controls: being female which is bigger than any of the religion effects. Why there are such effects is a good question, one on which I shall remain agnostic.

	Gross income €
Protestant	.
	.
Catholics	709.6
	(0.75)
Orthodox	-3399.1
	(1.95)
Jewish	-4884.2
	(1.42)
Muslim	-7268.4**
	(2.80)
Other	-4859.2**
	(2.63)
No religion	-156.9
	(0.20)
Missing	-850.6
	(0.65)
woman	-9576.0***
	(15.87)

Controls:age,age squared, education,height,cognitive ability, country effects,
n=14,594

Grades

1. How are college-grades determined? The economics literature points towards a simple answer: "by spending more time on study". I don't provide links here, but for evidence on the positive relationship between study-time and grades, see Arulampalam, Naylor and Smith (2007), Stinebrickner and Stinebrickner (2007) and Martins and Walker (2006). Dustmann and Van Soest (2007) show that part-time employment while in school has a negative effect on males' exam performance. Kalenkoski and Pabilonia (2010), DeSimone (2008), Joensen (2007), Oettinger (2005), Van Dyke et al. (2005), Stinebrickner and Stinebrickner (2003) and Ehrenberg (1987) all provide evidence that working (to varying degrees) while in college has a harmful effect on grades.

2. Why do students care about their grades? Again, I don't provide links here, but for evidence on the positive relationship between college grades and subsequent earnings, see McIntosh (2006), Loury and Garman (1995), Jones and Jackson (1990), Filer (1983) and Wise (1975).

3. What about grade inflation? Some economists are concerned about its interaction with the signalling model of labour market earnings. Others extend this concern to how social background may end up as a driver of labour market sorting.

4. However, grade inflation is hard to measure. In the paper 'More For Less or Less for More?', Geraint Johnes (Lancaster) and Robert McNabb (Cardiff) emphasise that studies of grade inflation have not distinguished between the effects of declining standards and increasing efficiency. "Yet both of these phenomena can plausibly explain an improvement in measured performance of educational institutions over time." Johnes and McNabb propose a method whereby competing effects can be disentangled. Their findings suggest that there has been no decline in standards in the UK university sector during the last decade. Efficiency, meanwhile, has risen steadily over the last 25 years.

5. It is also worth bearing in mind that sometimes universities split into high-grading and low-grading departments. Sabit and Wakeman-Linn (Journal of Economic Perspectives, albeit as far back as 1991) discuss the situation in the United States: "Economics, along with Chemistry and Math, tends to be low-grading. Art, English, Philosophy, Psychology and Political Science tends to be high-grading." Interestingly, it appears that there are higher returns to more harshly marked disciplines; see "Ability Sorting and the Returns to College Major" (Arcidiacono, Journal of Econometrics, 2003). "Large monetary premiums exist for choosing natural science and business majors even after controlling for selection."

The Labor Market Returns to Cognitive and Noncognitive Ability: Evidence from the Swedish Enlistment

Lindqvist, Erik (Research Institute of Industrial Economics (IFN))
Westman, Roine (New York University)

IFN Working Paper No. 794, 2009

We use data from the military enlistment for a large representative sample of Swedish men to assess the importance of cognitive and noncognitive ability for labor market outcomes. The measure of noncognitive ability is based on a personal interview conducted by a psychologist. Unlike survey-based measures of noncognitive ability, this measure is a substantially stronger predictor of labor market outcomes than cognitive ability. In particular, we find strong evidence that men who fare badly in the labor market in the sense of long-term unemployment or low annual earnings lack noncognitive but not cognitive ability. We point to a technological explanation for this result. Noncognitive ability is an important determinant of productivity irrespective of occupation or ability level, though it seems to be of particular importance for workers in a managerial position. In contrast, cognitive ability is valuable only for men in qualified occupations. As a result, noncognitive ability is more important for men at the verge of being priced out of the labor market.

Do Cognitive Skills Depend on Non-Cognitive Skills? And If So, What Does the Labour Market Reward?

In a previous post, I mentioned research on behavioural determinents of earnings by Bowles et al. (2001); these authors report that cognitive skills represent less than a fifth of the return to schooling. They suggest that the remaining 82% of the return to schooling could either be associated with more advanced cognitive skills that are not captured by basic measures, or with noncognitive skills. More recently, Pasche (2008) finds that over half the return to schooling is constituted of basic cognitive skills. Either way, the bias of non-cognitive personality traits is important when estimating the returns to education.

Research by Borghans, Meijers and ter Weel (reported at the AEA meeting earlier this month), examines the role of noncognitive skills in explaining cognitive test scores. They measure noncognitive skills both by personality traits and economic preference parameters; and the idea is that noncognitive skills might affect the effort people put into a test to obtain good results.

The authors experimentally varied the rewards for questions in a cognitive test to measure to what extent people are sensitive to financial incentives. To distinguish increased mental effort from extra time investments, they also varied the questions’ time constraints. Favourable personality traits such as high performance-motivation and an internal locus of control are associated with high test scores in the absence of rewards; which the authors say is consistent wiith trying as hard as possible.

In contrast, favourable economic preference parameters (low discount rate, low risk aversion) are associated with increases in time investments when incentives are introduced, consistent with a rational economic model in which people only invest when there are monetary returns.

The main conclusion of the research is that individual behavior in cognitive tests depends on noncognitive skills. This means that de-compositions of the returns to schooling may be biased towards cognitive skills in ways that have not been considered before. This underscores further the need to consider the bias of non-cognitive personality traits when estimating the returns to education.

The Returns to Positive Social Development in Childhood

Mary Silles from NUI Galway produced a working paper at Copenhagen's Center for Applied Microeconometrics in 2005, entitled "Personality, Education and Earnings". The paper uses the UK National Child Development Study to examine the effects of social maladjustment in childhood on schooling and earnings. "Net of differences in family background and cognitive ability, estimates suggest that early social maladjustment scores are associated with lower labor market earnings and schooling. These results suggest that there are substantial returns to fostering positive social development in childhood."

What Do We Know About Non-Cognitive Personality, Education and Earnings?

Bowles et al. (2001) find that, on average, controlling for cognitive skills reduces the years of schooling coefficient by 18%. Cognitive skills therefore represent less than a fifth of the return to schooling. The remaining 82% of the return to schooling could either be associated with more advanced cognitive skills that are not captured by basic measures, or with noncognitive skills. A different finding was recently presented by Pasche (2008) - 'What is it About Schooling That the Labor Market Rewards? The Components of the Return to Schooling'. Pasche finds that over half the return to schooling is constituted of basic cognitive skills. Either way, the bias of non-cognitive personality traits is important when estimating the returns to education.

According to Linz and Semykina (2005), personality may affect earnings through gender; they find that women's earnings are affected by personality, while men's earnings are not; the "unexplained" portion of the gender wage gap falls by as much as 12% when personality traits are included. Mueller and Plug (2004) also find that gender is important - they show that antagonistic, emotionally stable and open men enjoy substantial earnings advantages over otherwise similar individuals; whereas the labour market appears to value conscientiousness and openness to experience for women. Heineck and Anger (2008) produce evidence for a robust wage penalty associated with an external locus of control, for both men and women.

Heineck (2009 - from the recent AEA meeting) finds evidence for a negative relationship between wages and agreeableness for men, a negative relationship between wages and neuroticism for females, and a positive relationship between openness to experience and wages for women. Borghans et al. (2008 - from the recent AEA meeting) suggests that people are most productive in jobs that match their style. An oversupply of one attribute relative to the other reduces wages for people who are better with the attribute in greater supply. According to Lee (2006), issues that require further study and resolution are 1) which traits create wage differentials, and 2) two-way causality: does personality affect the wage, or does a wage premium become an incentive for a person to adopt new memes?

Male/female wage gap

The paper below made me think about the wage gap between males & females (sorry I hate the use of the word "gender" there) & to wonder does behavioural/neuro econ' have anything to say about it.In the asymmetric version of Nash co-operative bargaining, power can be thought of as coming from discount rates: higher discount rates means lower bargaining power.I wonder is this a plausible explanation of sex based differences in bargaining? I'm also curious to know what parts of the brain show activation during the bargaining process for example reward circuits.Maybe some people like the process and hence "hang tough".

Are Women Asking for Low Wages? Gender Differences in Wage Bargaining Strategies and Ensuing Bargaining Success.Säve-Söderbergh, Jenny (Swedish Institute for Social Research, Stockholm University). http://d.repec.org/n?u=RePEc:hhs:sofiwp:2007_007&r=cbe
Men and women’s labor market outcomes differ along pay, promotion and competitiveness. This paper contributes by uncovering results in a related unexplored field using unique data on individual wage bargaining. We find striking gender differences. Women, like men, also bargain, but they submit lower wage bids and are offered lower wages than men. The adjusted gender wage gap is lower with posted-wage jobs than with individual bargaining, although less is ascribable to the term associated with discrimination. Both women and men use self-promoting, or competitive bargaining strategies, but women self-promote at lower levels. Employers reward self-promotion but the larger the self-promotion, the larger is the gender gap in bargaining success. Women therefore lack the incentives to self-promote, which helps to explain the gender disparities.