Conference Paper BHPS-2009 Conference: the 2009 British Household Panel Survey Research Conference, 9-11 July 2009, Colchester, UK
Explaining personality pay gaps in Britain
In the existing economic literature there are already several empirical studies emphasizing the relevance of personality traits on wages but they do not consider that these traits can be differently rewarded for different occupations, educational levels, experience, etc. The differences in rewards could be related to differences in productivity or to taste-based discrimination (of employers, colleagues or consumers) against workers with specific personality traits. Psychologists find, for example, positive associations between conscientiousness and job performance for all types of occupations and between extroversion and job performance for occupations which require social interaction or team work. In this paper, by using the Big-5 trait taxonomy (extroversion, agreeableness, conscientiousness, neuroticism and openness to experience), we classify people into different personality groups and we decompose the pay gap between these groups into a part explained by differences in characteristics and a part explained by differences in the returns to these characteristics. We further decompose those two components to identify the contribution of each specific characteristic. We adopt the decomposition method proposed by Firpo et al (2007), which uses weights to equivalize the distribution of covariates between personality groups, and recentered influence functions to provide a detailed decomposition as in the Oaxaca- Blinder approach. For our empirical analysis we use data from the British Household Panel Survey. We find that agreeableness is the most relevant personality trait in explaining differences in pay followed by openness to experience and neuroticism. There is a significant pay gap for workers who are highly agreeable and about half of it is explained by difference in characteristics. People who are little open to experience are paid less and this disadvantage is totally explained by differences in their characteristics. On the contrary, the pay gap for highly neurotic workers is not at all explained by characteristics and it is probably related to differences in taste-based discrimination. We also find that the penalty for high neuroticism differs significantly by occupation. Looking at the pay gaps at different quantiles, we find similar results.