Female Labor Force Participation and the Big Five

Abstract

In this paper, we analyze the role of personality traits for female labor force participation. While research on the role of cognitive skills for individual labor market success has a long tradition in economics, comparatively little is known about the channels through which non-cognitive skills affect individual labor market behavior. However, we find strong evidence that aside from differences in cognitive skills, a large proportion of individual earnings differentials can be attributed to personality traits. Consequently, we expect two possible channels of personality traits having an influence on female labor force participation: First, personality traits that are favorable to higher wages might increase the probability of a women participating in the labor market simply because she faces higher wages. Second, there can also be a direct effect of personality traits if they influence preferences that determine labor force participation. For our analysis, we use the Big Five Personality Concept of personal psychology that groups the personality facets of an individual into five personality domains: Extraversion, Agreeableness, Conscientiousness, Neuroticism and Openness to Experience. The data that we use is taken from the German Socio-Economic Panel (SOEP) that includes self reported measurements of the Big Five Traits additional to rich information about the socio-economic background as well as the employment history. Our results show that personality traits play an important role for female labor force participation. In particular, we find that ignoring personality traits exaggerates the effect of education. We can show a strong positive effect of Extraversion and a strong negative effect of Agreeableness on wages. However, this effect does not carry through to the labor force participation since the wage elasticity for female labor supply is not significantly different from zero. Therefore, the effect of personality traits is largely a direct one. Conscientiousness has the largest positive impact, followed by Extraversion. High scores on Neuroticism and Openness lower the probability of a women participating in the labor market. The study expands the understanding of the heterogeneity of individual decisions. We find strong evidence that the Big Five Personality Concept is closely related to preference parameters and that this effect is rather stable over different age groups compared to other socio-economic variables. However, future research has to shed more light on the role of personality traits for preference formation. Moreover, our results show the need to include personality traits also in other economic analyses since we do not expect that the impact of personality traits is only limited to the marginal rate of substitution between leisure and consumption.

Keywords: personality traits, female labor supply, wages

JEL Classification: C35, J22, J24