Labor Market Returns to Personality: A Job Search Approach to Understanding Gender Gaps

This paper investigates the effects of the Big Five personality traits on labor market outcomes and on gender disparities within a job search, matching and bargaining model with heterogeneous workers. In the model, parameters pertaining to productivity, job offer arrival rates, job dissolution rates and the division of surplus depend on worker education, cognitive skills, personality traits and other demographic characteristics. The model is estimated using a representative panel dataset, the German Socio-Economic Panel (GSOEP). Results show that both cognitive and noncognitive traits are important determinants of wage and employment outcomes. Higher levels of conscientiousness and emotional stability and lower levels of agreeableness increase hourly wages and promote greater job finding rates. A decomposition analysis shows that gender differences in two personality traits - agreeableness and emotional stability - primarily account for the gender wage gap and that their effect operates largely through a reduction in the bargaining power of women. Using results drawn from the clinical psychology literature, we find that a mental health intervention targeted at individuals with low levels of emotional stability could reduce the gender wage gap by from 2 to 5 percent and reduce wage inequality.