ERASMUS SCHOOL OF ECONOMICS MSc Economics and Business Economics of Management and Organisation FEM11132: Seminar Recent Advances in Economics of Management and Organisations Wages and the Big Five personality traits of natives and immigrants Do differences in personality traits for natives and immigrants matter? Professor: Dr. A. J. Dur Student: Tara Ramlal Student number: 367345 4/22/2016 Abstract This paper tries to gain insights in differences in wages for natives and immigrants based on their personality. In this way, the importance of personality, as alternative explanation for discrimination, with respect to success at work becomes clearer. Personality is measured with the help of the Big Five personality traits. The study shows that the personality trait openness has a negative relationship with wages for both natives and immigrants. Extraversion is positively related to the wages for natives, but overall negatively related with wages for immigrants. Lastly, neuroticism is negatively related to wages for immigrants. Next to these findings, this study also finds a negative relationship with wages for women and married people. Education and age show a positive relationship with wages, but the increase in wages reduces the older one gets.
1. Introduction There is a long and extensive debate about the differences between natives and immigrants, in many areas. The integration of immigrants in the society and labor market is an important part of the discussions. It seems immigrants have a disadvantage on the labor market, be it with applying for a job or trying to get to the top. When immigrants are observed in society, they experience higher unemployment rates and lower earnings (Kahanec & Zaiceva, 2009). Since immigrants are a minority or disadvantages group, people often think discrimination is the reason that immigrants cannot seem to be successful. Another explanation that is often mentioned is the cultural differences between natives and immigrants. Since immigrants have to adapt to the new culture they face, it takes time before they understand the norms, values and way of living and working in the new country. Because of the cultural differences and the different upbringing, immigrants and their descendants have other personalities compared to natives and therefore also other skills and preferences regarding their job (Borjas, 1994). These personality traits may not be ideal to get to the top and therefore influences immigrants ability to succeed. Since a lot of countries faced immigrations flows in the past, they have a multicultural society. Therefore, it is very important to investigate why immigrants are less successful in the labor market. People mention discrimination too easily and too much in many cases, but is it genuinely a question of discrimination? Or is it just because of different personalities immigrants and natives face? Also, the immigration inflows are increasing nowadays due to the conditions in the Middle-East and Africa. The Netherlands also faces these inflows. This makes this topic even more important, since the Netherlands and other countries will face similar problems in the future. This research will try to gain insights in wage differentials for natives and immigrants based on their personality. In this way, it can be seen if personality is an explanation for success in the labor market for immigrants. Next to that, when there is more clarification about how one s personality can influence his success at work, one can better determine in different situations whether discrimination is present or it is rather caused by other factors like the personality of a person. In this study, personality traits will be measured with the help of the Big Five personality traits. The research question will be: How do the Big Five personality traits relate to the wages of natives and immigrants? Research already tried to gain more insights in the effect of personality on earnings. Fletcher investigates the effects of personality traits on adult labor market outcomes for siblings. In this way he controls for almost all environmental factors that can influence wages and he also adds controls like attractiveness, cognitive ability, schooling and occupation. Most importantly, he finds that extraversion has a positive effect on labor market outcomes. The results of the paper suggest that personality measures are important for labor market outcomes and that the results vary considerable by demographic group. Employment returns to extraversion are higher in women within-family analyses compared to that of men and extraversion seems to be more positively associated with employment for individuals who grew up in low income households rather than those who grew up in high income households (Fletcher, 2013). Nyhus and Pons find that emotional stability is positively associated with wages, while agreeableness is significantly associated with lower wages for only women. Both men and women are rewarded for autonomy as tenure increases, but men are rewarded more than women. Conscientiousness is also rewarded by a higher wage, especially in the beginning of an employment relationship. The paper also finds that the economic returns of the personality traits in wage determination varies between educational groups (Nyhus & Pons, 2005). The wage differentials for natives and immigrants have also been investigated in the past. Van Ours and Veenman find that education is also important for differences in wages between immigrants and 2
natives. A lot of second-generation immigrants have a lower educational attainment because their parents on average have a lower level of education (van Ours & Veenman, 2003). This finding is very intuitive and therefore education is added as a control in this study. Dustmann, Glitz and Vogel investigate differences in the cyclical pattern of employment and wages of immigrants and natives in Germany and the UK. They find significantly larger unemployment responses to economic shocks for low-skilled workers relative to high-skilled workers and for immigrants relative to natives within the same skill group. There is little evidence for differential wage responses to economic shocks (Dustmann, Glitz, & Vogel, 2010). This could point towards discrimination or either personality differences, since immigrants with the same skills as natives have a higher chance to get fired in times of economic shocks. The main contribution of this paper is that it combines research into personality and wages with differences for immigrants and natives. It tries to find the relation of wages with personality traits for immigrants compared to personality traits for natives, which has never been done so far. The data is retrieved from the Longitudinal Internet Studies for the Social Sciences panel (LISS panel), which is a principal component of the MESS project. The panel consists of 4500 households, comprising 7000 individuals, and includes questions about work, religion, politics, immigration and demographic variables. This study is performed over 2014, since the ratio of natives and immigrants in the dataset came closest to the real ratio in the Netherlands. The method employed in this research is an OLS. The results are as follows. The personality trait openness seems to have a negative relationship with wages for both natives and immigrants. Natives have an advantage with being extrovert, which is in line with Fletcher, while immigrants face a disadvantage in being extrovert. Next to that, when the focus lies on immigrants only, neuroticism is a personality that relates to the wages of immigrants in a negative way. This is line with Nyhus and Pons. Immigrants also seem to have a disadvantage in neuroticism compared to natives, which makes this personality even more important for them. The results of this paper also show that being a woman relates to your wages in a negative way. This result holds too for being married. Education has a positive relationship with wages for both groups. Lastly, wages seem to increase with age, but the older one gets, the less this increase will become. The paper proceeds as follows. In section 2 of this paper, the data is discussed briefly and some first patterns are shown. The empirical strategy is described in section 3 and in section 4 the results are presented. Finally, section 5 concludes. 2. Data The data is retrieved from the LISS panel. The panel is based on a true probability sample of households drawn from the population register by Statistics Netherlands. Households that could not participate because they had no computer and internet connection, were provided with both. Members of the panel complete online questionnaires every month of about 15 to 30 minutes in total. They are paid for each completed questionnaire. The study is repeated every year since October 2007 and is designed to follow changes in the life course and living conditions of the panel members. In addition to the LISS panel, an Immigrant panel was constructed from October 2010 up until December 2014. This panel consisted of around 1600 households (2400 individuals) of which 1100 households (1700 individuals) were of non-dutch origin. For this study, datasets about the background, personality and work and schooling for 2014 were merged. The year 2014 had the most representative ratio of natives and immigrants over the period 3
of 2008 to 2015 1. After merging the three datasets, 5757 individuals were left. Next, all individuals that did not have a job in 2014 were removed from the dataset. This is important, since this study is focused on wages. Therefore, individuals without income are excluded from the dataset. After this, 3296 observations were left. Lastly, missing observations for origin and the Big Five personality traits were removed because if an individual did not fill it in, he did not fill in most of the questions. This is important, since these variables are the basis of the study. This resulted in the final dataset containing 3209 individuals for 2014, of which 2732 are natives and 477 immigrants. The key variables in this study are origin, the Big Five personality traits and the personal gross monthly income of the individuals. Origin took the value of 0 if the individual had a Dutch background. It took the value of 1 when the individual was an immigrant, including first and second generations and western and non-western backgrounds. The Big Five personality traits were measured with 10 questions according to the International Personality Item Pool (IPIP) 2, which were either positively or negatively formulated 3. Individuals could answer on a scale of 1 to 5, were 1 represented very inaccurate and 5 very accurate. The answers on the negatively formulated questions were transformed and the average of the answers was taken to determine an individual s score for the personality trait. The higher an individual scores on the scale, the more the personality trait fits him. The personal gross monthly income in Euros could be filled in by the individuals itself. Next to these key variables, the control variables gender, age, age-squared, education and civil status are included. This is to see if the relations between the key interest variables and the dependent variables are robust. Table 2 presents the descriptive statistics of the data for natives and immigrants separately. The gross monthly income is roughly the same for both groups, which also holds for the means of the Big Five personality traits. The high standard deviation of the gross monthly income occurs because there are individuals that earn 500 Euros in a month, but also individuals that earn more than 4000 Euros in a month. Furthermore, there are more females present under the native respondents and the average age is slightly higher in this group when compared to the immigrants. This can be caused by immigrants that start working at a younger age compared to natives. What is most surprising is that immigrants seem to be higher educated on average. However, this average can be overestimated due to immigrants that did not fill in an answer for this question when they had a low education or no education at all. Lastly, more native respondents are married compared to the immigrant respondents. 1 In 2014, 21.4% of the population in the Netherlands was an immigrant (Bevolking; kerncijfers). In the original dataset 17.5% of the respondents were immigrants. After merging and deleting missing observations, this became 15%. 2 The IPIP is a reliable, valid and efficient questionnaire to measure the Big Five personality traits (Jolijn Hendriks, Hofstee, & De Raad, 1999). 3 See Appendix: table 1 4
Table 3 shows the correlation table of the data. Origin seems to have a negative impact on almost all variables. Being an immigrant relates negatively to almost all personality traits, significantly. It also has a negative relationship with the gross monthly income. However, this correlation is not significant. Gross monthly income is positively correlated with extraversion, openness and conscientiousness. These personalities thus seem to be appreciated at work. Agreeableness and neuroticism are personalities that are not appreciated and have a negative relationship with gross monthly income. More interesting and intuitively is that higher educated individuals score higher for the positive personalities and score lower for neuroticism. 5
3. Empirical Strategy The method employed in this research is a multiple OLS regression. In the first part of the analysis, the focus only lies on each group separate and how personality within the group relates to the wages of the group, to determine important personalities for each group apart. In the second part, the groups are aggregated and interaction terms are included, to make it able to see if immigrants face different relations to wages for the personalities compared to natives, and in what way. This is to determine if holding the same personalities as natives have different relations to wages for immigrants. First, the Big Five personality traits are regressed on the income of natives and immigrants apart. This is thus to determine how personalities explain wages for each group apart. Control variables are also added to see if the relations are robust. The regression specification is as follows: where stands for the Big Five personality traits of group g, which is natives or immigrants. is a vector of the controls included in the regression for group g. After this, the multiple OLS regression is used again to investigate how the Big Five personality traits of immigrants relate to wages compared to natives. This is investigated with the inclusion of interactions terms between origin and the Big Five personality traits. Control variables are again added to see if the relationships are robust. This leads to the following regression: where presents the five personality traits. is a dummy variable that takes the value of 1 when one is an immigrant and 0 if one is native. is a vector of controls included in the regression. 4. Results Table 4 shows the results for the first part of the analysis, where the relation of the Big Five with wages for the two groups is investigated. In column I and II, the dependent variable is wages of natives. The dependent variable in columns III and IV is wages of immigrants. Columns I and III show the regressions with the Big Five personality traits on the wages of the groups. In columns II and IV, the controls gender, age, age-squared, education and civil status are included. In column I, agreeableness and neuroticism have significant negative relations with wages of natives. A one unit increase in agreeableness decreases the wages of natives with 21.2 percentage points, ceteris paribus. Conscientiousness shows a positive relationship with wages. But when the control variables are included in column II, all three variables become insignificant. Instead, extraversion shows a positive relationship, which is in line with Fletcher, and openness a negative relationship with the wages of natives. Since the other variables are not significant, they are likely not different from zero. They do not seem to have a relationship with the wages for natives. All control variables are significant. For immigrants in column III, conscientiousness has a positive significant relation with wages for immigrants and neuroticism has intuitively a negative significant relation with wages, both in line with Nyhus and Pons. When the control variables are added in column IV, the negative and significant relation of neuroticism on the wages of immigrants persists. However, since the other 6
personality traits are not significant, they do not seem to have a relationship with wages of immigrants. The controls are significant, all be it on a 5% level. Overall, the results in table 4 show that different personality traits have a significant relationship with the wages for natives and immigrants. Extraversion and openness seem to be important factors for natives wages, while neuroticism is important for immigrants wages. Table 5 shows the main results for this paper. The Big Five personality traits and interaction terms of the personality traits with origin are regressed on wages as a whole. In column I with the Big Five regressed on wages, conscientiousness shows a positive and significant relationship with wages in line with Nyhus and Pons. Agreeableness and neuroticism are less favorable personalities with respect to wages, as they show a negative and significant relationship with wages. The other two personalities do not show significant relations, but extraversion has a negative sign and openness a positive sign. When origin is included in column II, the results do not change compared to column I. In column III, the interaction terms are included, which will show the most interesting findings of this paper. Agreeableness, conscientiousness and neuroticism still remain significant and constant in their sign. Origin shows a negative sign, but since it is not significant, nothing can be said about the relation with wages. For the interactions terms, only extraversion and neuroticism interacted with 7
origin show significant results on a 10% level. Immigrants have a disadvantage when they have a stronger personality regarding extraversion. Being an immigrant, a one unit increase in extraversion decreases the earnings of the immigrant with 20.7 percentage points, ceteris paribus. This is a huge decrease compared to natives, who face a 1 percentage point increase when extraversion increases with one unit, ceteris paribus. The 1 percentage point, however, is very small and not significant, so for natives there does not seem to be a relationship regarding extraversion. Also, a one unit increase in neuroticism decreases wages for immigrants with 22.4 percentage points more than for natives, ceteris paribus. This is an overall decrease of 47.5 percentage points for immigrants when neuroticism increases with one unit, ceteris paribus. For the other personalities, no differences in wages are found between natives and immigrants. When the controls are added in column IV, extraversion and openness become significant while the other personality traits become insignificant. Extraversion shows a positive relation with wages, as Fletcher found, which became higher compared to column III. Openness relates negatively with wages. Origin remains insignificant, but the negative sign is consistent in column II to IV. This makes the suggestion stronger that being an immigrant reduces your wages. The relation of the interaction terms with respect to wages remain the same compared to column III. The negative coefficient of extraversion became smaller, but the negative coefficient of neuroticism became even more negative. Neuroticism seems to be not a great personality with respect to one s wages, which is actually intuitive. When one gets frustrated easily and feels lonely, angry, jealous or scared quickly, it is harder to cope with a job and colleagues. This could decrease the wage of the person, because he might be replaced on a lower, less demanding function. Or the person is not able to climb up in the organisation. The control variables in column IV are all significant. The negative and significant coefficient for gender suggests that being a woman decreases your wages. This also holds for civil status. If one is married, this decreases the earnings with 28.5 percentage points, ceteris paribus. Education has a positive relationship with wages, which is intuitive and in line with the findings of Van Ours and Veenman. Age shows a positive relationship with wages. The older one gets, the higher his wage will be. Since one has more experience when the years pass, he is more able to climb up to the top and earn more. Age-squared, however, is significant and negative. This suggests that the older one gets, the less the earnings increase. Overall, table 5 shows that extraversion can be positive for natives, but it suggests that immigrants face wage decreases due to extraversion. Neuroticism has a negative relation with wages for both natives and immigrants, but immigrants that have this personality seem to be more at disadvantage compared to natives. For both natives and immigrants, being more open has a negative relation with wages. 8
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5. Conclusion This research tries to gain insights in wage differentials for natives and immigrants based on their personality. The paper tries to attain clarification whether personality is an explanation for success in the labor market. When there is more clarification about how one s personality can influence his success at work, one can judge more accurate whether discrimination is present in different situations or it is rather caused by other factors like personality. Past research has investigated the effect of personality on earnings, and also the wage differentials for natives and immigrants. They found that extraversion and conscientiousness have a positive effect on labor market outcomes, while neuroticism has a negative impact on wages. The results for personality traits on earnings were, however, sensitive for demographic groups. This paper is the first study to combine the relationship of personality traits on wages with differences for natives and immigrants. It shows that the personality trait openness seems to have a negative relation with wages for both natives and immigrants. In line with previous literature, being extrovert has a positive relation with wages. However, this only holds for natives. Immigrants face a disadvantage in being extrovert compared to natives, which leads to an overall negative relationship with wages. Neuroticism also shows a negative relationship with wages for immigrants relative to natives. Furthermore, the results show that being a woman relates to your wages in a negative way. This result also holds for being married. Education has a positive relationship with wages. Lastly, wages seem to increase with age, but the older one gets, the less this increase will become. This research is the first to take steps in the direction of explaining further why natives and immigrants face different wages. However, the group of immigrants is very diverse. It consists of people coming to a country because of job offers, mostly individuals that will earn more than the average. It also consists of refugees that are coming from countries where there is war. These people often do not speak the language of the country, are not educated well and do not have financial resources. To gain a better and more reliable insight, it is interesting to investigate a certain group of immigrants in more detail, instead of aggregating all immigrants. Next to that, it will be interesting to see how the results hold when actual hourly wages are employed instead of the gross monthly income. Since an OLS is implemented in this research, the results will likely be different. Therefore, to gain robust results, more advanced and reliable methods could give more consistent results for the relationship of personality on wages for natives and immigrants. Lastly, it is hard to find a causal effect in this research, since a lot of omitted variables will be present in the empirical strategy. There are a lot of factors that influence wages. Thus an interesting follow-up of this study could look if the results hold over the years and whether the results differ in size. Over time people adjust to the country they live in, they can experience an increase in their wage or they can get better educated. Future studies in this field are necessary, and hopefully this paper will encourage researchers to investigate this topic further as to gain more clarification and insights in the relationship of natives and immigrants personality on their wages. 10
References Bevolking; kerncijfers. (sd). Opgeroepen op April 12, 2016, van Centraal Bureau voor de Statistiek: http://statline.cbs.nl/statweb/publication/?dm=slnl&pa=37296ned&d1=25-35,56&d2=0,10,20,30,40,50,64&hdr=g1&stb=t&vw=t Borjas, G. J. (1994). Long-Run Convergence of Ethnic Skill Differentials: The Children and Grandchildren ofthe Great Migration. Industrial and Labor Relations Review, 47, 553-573. Dustmann, C., Glitz, A., & Vogel, T. (2010). Employment, Wages, and the Economic Cycle: Differences between Immigrants and Natives. European Economic Review, 1-17. Fletcher, J. M. (2013). The effects of personality traits on adult labor market. Journal of Economic Behavior & Organization, 122-135. Jolijn Hendriks, A. A., Hofstee, W. K., & De Raad, B. (1999). The Five-Factor Personality Inventory (FFPI). Personality and Individual Differences, 307-325. Kahanec, M., & Zaiceva, A. (2009). Labor market outcomes of immigrants and non citizens in the EU: An East West comparison. International Journal of Manpower, 30, 97-115. Nyhus, E. K., & Pons, E. (2005). The effects of personality on earnings. Journal of Economic Psychology, 363-384. van Ours, J. C., & Veenman, J. (2003). The educational attainment of second-generation. Journal of Population Economics, 739-753. 11
Appendix Table 1; The International Personality Item Pool (10 items per personality trait) Extraversion Agreeableness Openness Conscientiousness Neuroticism I am the life of the party. I am interested in people. I have a rich vocabulary. I am always prepared. I am easily disturbed. I don't mind being the centre of attention. I sympathize with others' feelings. I have a vivid imagination. I pay attention to details. I change my mood a lot. I feel comfortable around people. I have a soft heart. I have excellent ideas. I get chores done right away I get irritated easily. I start conversations. I take time out for others. I am quick to understand things. I like order. I get stressed out easily. I talk to a lot of different people at parties. I feel others' emotions. I use difficult words. I follow a schedule. I get upset easily. I don't talk a lot. (reversed) I make people feel at ease. I spend time reflecting on things. I am exacting in my work I have frequent mood swings. I keep in the background. (reversed) I am not really interested in others. (reversed) I am full of ideas. I leave my belongings around. (reversed) I often feel blue. I have little to say. (reversed) I insult people. (reversed) I am not interested in abstractions. (reversed) I make a mess of things. (reversed) I worry about things. I don't like to draw attention to I am not interested in other I do not have a good I often forget to put things back I am relaxed most of the time myself. (reversed) people's problems. (reversed) imagination. (reversed) in their proper place. (reversed) (reversed) I am quiet around strangers. (reversed) I feel little concern for others. (reversed) I have difficulty understanding abstract ideas. (reversed) I shirk my duties. (reversed) I seldom feel blue. (reversed) 12