Believe In A Just Wage? The Effect Of Personality On Labour Market Outcomes

Abstract

This paper examines the impact of students' non-cognitive skills locus of control and self-esteem on their decision to enroll at college, and on their wages once they enter the labour market. We extend previous research in several ways: a model of belief formation suggests a pathway by which these traits affect economic outcomes and allows to derive testable predictions concerning individuals' decisions to invest in their human capital. The data confirm these predictions: parametric and non-parametric estimation on a dataset not previously used for such a study shows that these skills matter for the decision to go to university and, in the case of locus, for sucessful completion of higher education. For certain groups of workers they affect wages over and beyond the educational choice: for students who only obtained high school education, these skills are rewarded on the labour market, whereas for college graduates their effect is not significant. These results may be explained by signaling models of higher education, and they contribute to the discussion about the direct or indirect impact of non-cognitive skills on wages, emphasizing that any answers to this debate must depend on the type of workers considered. Cognitive and non-cognitive traits affect investment decisions in a comparable way, underlining the importance policy makers should place on fostering the latter among students from disadvantaged backgrounds.