3 Personality Traits Affect What You Earn - but Only After Age 40 – University of Copenhagen

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25 April 2018

3 Personality Traits Affect What You Earn - but Only After Age 40

Miriam Gensowski

In a recent paper, I investigate these questions by looking at the connection between personality traits and lifetime earnings among men at different ages. I find that men’s earnings are not affected by personality at all in the beginning of their careers, but that men who are more conscientious and extroverted, as well as less agreeable, reap large benefits between their 40s and 60s. The evidence also points to a subgroup of men who benefit from these traits more than twice as much as others: those with a graduate education.  The overall effect of personality on lifetime earnings is large – in the same order of magnitude as the average lifetime earnings difference between high school and college graduates in my sample: over $1.2 million USD (2017).

I used data from the Terman study, one of the longest running studies in psychology that examines the development of gifted individuals since 1922. It has followed over 1,000 men and women in California who were selected for having IQs of at least 140 (the top 0.5% of the population). It is probably the only study that has U.S. data on earnings throughout a lifetime, which allowed me to relate early measures of personality to annual earnings from age 18 to 75. I focused here on the results for men (595 total), because women’s professional opportunities in this cohort were so limited.

I constructed annual earnings measures from retrospective questions in questionnaires that were given every 5-10 years. Personality information came from participants’ parents and teachers, who rated children’s extraversion and openness to experience (a measure of curiosity and originality) when they were about 10 years old, as well as from participants themselves, who rated themselves on the traits of conscientiousness, agreeableness, and emotional stability at around age 30. There is also information on participants’ background from their parents, who described their education, employment, finances, as well as the child’s health growing up.

The benefit of linking earnings later in life to personality measured at a young age is it makes us more confident that the association between personality traits and earnings did not arise because someone who got a lucky draw with high income became more extroverted as a result. Instead, we can interpret the association as personality influencing earnings. This approach relies on the fact that while personality can change over time, personality relative to our peers is quite stable (i.e., being the most conscientious person among your peers remains robust over time).

When and where does personality matter?

To analyze how people’s lifetime earnings are influenced by their personality traits, I statistically compared men with equal IQ, parental characteristics, and childhood conditions (including finances and health), at each age. I attributed the remaining differences in earnings of otherwise equal men to differences in scores on personality traits.

Researchers have not seen this kind of hump-shaped pattern yet, because most do not separate different age groups. But if we look at data of very young workers, we could erroneously conclude that personality traits do not matter for earnings. Instead, the results here indicate that the main advantages from strong personality traits arise to advanced-level workers. You can imagine why – for example, consider how a manager’s personality would have a stronger impact on the productivity of his team than that of an entry-level employee. The large late-life effects also demonstrate that the intensity and length of one’s working life –both of which tend to be influenced by personality—influence earnings. 

How does this difference in annual earnings add up over a lifetime? Consider two men in the Terman study, who are equal on all background characteristics and all traits, except for extraversion. The man who is average on this trait will earn $600,000 USD more over a lifetime than his more introverted peer (whose extraversion is, say, in the bottom 20% of the distribution). This effect size corresponds to about 15% of lifetime earnings. The magnitude of this effect is equally large for conscientiousness, which isn’t surprising given other research: conscientious men receive higher wages for being more productive on the job. They are also more likely to obtain higher education, which in turn boosts earnings. Furthermore, individuals that are more conscientious tend to lead longer and healthier working lives, and therefore accumulate higher lifetime earnings.

I also found that more agreeable men, who tend to be friendly and helpful to others, have significantly lower earnings than less agreeable men. The man who is very agreeable (in the top 20%) will earn about $270,000 USD less over a lifetime than the average man.

IQ is also significantly positively associated with lifetime earnings in this sample, even though one can only compare very-high-IQ individuals to even-higher-IQ individuals in Terman. A 10-point increase in IQ is associated with about $200,000 USD higher lifetime earnings. Interestingly, emotional stability and openness to experience were not significantly related to lifetime earnings in this sample.

 Who benefits most?

Next, I compare men with the same background and traits at the same education level to see whether the influence of traits depends on education. It turns out that highly educated men benefit more than twice as much from these three personality traits (conscientiousness, extraversion, and low agreeableness) than less educated men. For example, when comparing two men with a bachelor’s degree, the introvert (bottom 20% of extraversion) will earn about $290,000 USD less than his peer with average extraversion. This earnings difference increases to about $760,000 USD when we compare an introvert to someone at the average extraversion when both hold a Master’s or doctorate. In economics, we would attribute this to complementarities in production: two types of capital (soft-skill-human capital and education) are worth more together than the sum of their parts. It also means that someone very extroverted or conscientious stands a lot more to gain from higher education than someone who does not have these strong skills.

Of course the high-IQ individuals of the Terman sample are unique. So how much do these findings apply to the majority of us today? This depends on whether careers develop in a similar way now as they did back then. We have reason to believe that the basic mechanisms that determine which skills drive earnings – such as productivity, promotions, and health behaviors – are still quite similar. And they seem to be. In fact, the personality traits that have the strongest association with lifetime earnings in Terman are exactly the same traits that are found to be most important for wages among today’s workers.

This research gives us a good summary of the possible channels through which personality traits can influence our careers. Conscientiousness and extraversion not only affect on-the-job productivity directly, but they can also increase lifetime earnings indirectly by affecting behavior and the length and intensity of our working lives. Age-by-age analyses over the lifetime show that even if earnings differences between young workers are small today, we should expect them to grow significantly as they advance in their careers.