Psychological Traits and the Gender Gap in Wages

Nils Braakmann from Leuphana University, Lüneburg has used the German Socio-Economic Panel to show that differences in various non-cognitive traits, specifically the “Big Five”, positive and negative reciprocity, locus of control and risk aversion, contribute to gender inequalities in wages and employment. The evidence suggests that gender differences in psychological traits are more important for inequalities in wages than in employment. Differences in the “Big Five”, in particular in agreeableness, conscientiousness and neurocitism matter for both wages and employment. The paper is available here.

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.

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?

Do Younger Students Do Better?

In a recent IZA working paper, Billari and Pellizzari show that the youngest students in an Italian university perform better compared to their oldest peers, particularly in the most technical subjects. They also find that the youngest students perform slightly better in cognitive tests and also appear to have less active social lives: they are less likely to do sports, go to discos and have romantic relationships. Based on this, Billari and Pellizzari suggest:

(i) a profile of cognitive development that might be decreasing already around age 20; (ii) psychological relative age effects that lead the youngest in a cohort to develop social skills (self-esteem, leadership) at a slower pace

Their conclusion is that younger students have less active social lives and devote more time to studying (which they say is backed up by additional evidence from the PISA study).

NBER -- Body Composition and Wages

URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:13595&r=hea
This paper examines the effect of body composition on wages. They develop measures of body composition “ body fat (BF) and fat-free mass (FFM) “ using data on bioelectrical impedance analysis (BIA) that are available in the National Health and Nutrition Examination Survey III and estimate wage models for respondents in the National Longitudinal Survey of Youth 1979. Their results indicate that increased body fat is unambiguously associated with decreased wages for both males and females. This result is in contrast to the mixed and sometimes inconsistent results from the previous research using body mass index (BMI). They also find new evidence indicating that a higher level of fat-free body mass is consistently associated with increased hourly wages. Finally they present further evidence that these results are not the artifacts of unobserved heterogeneity and show their findings robust to numerous specification checks and to a large number of alternative BIA prediction equations from which the body composition measures are derived. This work addresses an important limitation of the current literature on the economics of obesity. Previous research relied on body weight or BMI for measuring obesity despite the growing agreement in the medical literature that they represent misleading measures of obesity because of their inability to distinguish between body fat and fat-free body mass. Body composition measures used in this paper represent significant improvements over the previously used measures because they allow for the effects of fat and fat free components of body composition to be separately identified. The work also contributes to the growing literature on the role of non-cognitive characteristics on wage determination.