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As shown by Becker et al. (2012), the Big Five personality traits and economic preference parameters permit a wide range of individual heterogeneities and complement each other in predicting life outcomes.
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Returns to Higher Education are estimated to be around 6-9% in the UK, and while non-cognitive skills (such as locus of control, traits of work ethics, conscientiousness, self-esteem etc) and their impact on life-outcomes have been increasingly studied in psychology, sociology as well as economics, their effect on returns to higher education did not receive the focus its potentially deserves. Using the LSYPE this paper estimates the returns to Higher Education in the UK while controlling for these non-cognitive skills using standard OLS as well as Propensity Score Matching and Inverse Probability Weighted Regression Adjustment. Against expectation the inclusion of non-cognitive skills does not affect the estimates for returns to higher education greatly, and out of all non-cognitive skills included a high Locus of Control is the only trait that has a (statistically significant) positive impact on income. Having obtained a degree, therefore, far outweighs the effects of non-cognitive skills on income.
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It is common to assume that certain personality traits like initiative, persistence, motivation are desirable for successful outcomes in life and literature in psychology, sociology and economics has been increasingly trying to study the effect of such personality traits, otherwise known as non-cognitive skills, on various outcomes, by filling the gaps where previously only cognitive skills were accounted for. One such outcome is the return to Higher Education (HE) for which previous evidence has commonly demonstrated a return of around 10% (Harmon et al., 2003) and only controls for cognitive skills. While evidence on the returns of non-cognitive skills is increasing in recent years, it is nevertheless bound by data availability. The release of the Age 25 Survey, the latest survey of the Longitudinal Study of Young People in England, contains not only plenty information about the characteristics, traits and lives of the individuals but also the first observations on early labor market outcomes and offers hence the opportunity to explore the relationship between non-cognitive skills and the returns to HE.
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The aim of this study is to explore the effect on non-cognitive skills on wages as well as the robustness of the returns to higher education estimate towards the inclusion of non-cognitive skills (which to my best knowledge has not been studied previously) using the most recent cohort data available for the UK.
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The concept of non-cognitive skills is rooted in the field of personality psychology and hence an understanding of its implications in life requires/-draws back upon an interdisciplinary review of evidence. It is common to assume that your personality plays an important role in life and certain personality traits like initiative, persistence, motivation, and charm seem desirable for successful life-outcomes. Psychology literature formalizes the various facets of an individual's personality with the Big Five personality traits: Openness to Experience, Conscientiousness, Extraversion, Agreeableness, and Neuroticism. It has become a widely used taxonomy of personality traits aiming to characterize them at the broadest level of abstraction. Within these broader definitions are a number of more narrowly defined personality characteristics some of which are more relevant in the scope of this research than others. As such competence, dutifulness, self-discipline, perseverance and work-ethic all represent different sides of Conscientiousness which in turn next to Openness to Experience have been shown to have a particularly strong association with successful outcomes in education (years of education, grades, test scores etc.) as well as successful labor market outcomes (Almlund et al., 2011). Almlund et al. (2011) also highlight locus of control (which is closely related to conscientiousness) and self-esteem, as two further personality traits that have been shown to particularly influence job performance and predict wages (Judge and Hurst, 2007; Drago, 2011; Duncan and Dunifon, 1998). Just as the study of non-cognitive skills and their impact grew in the fields of psychology and sociology it also gained popularity among economists which have been increasingly exploring the causal impacts of the non-cognitive skills.
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One of the earlier contributions to the debate is Jencks' 1979 book "Who gets ahead - The Determinants of Economic Success in America" who discusses family background, academic ability education as well as non-cognitive traits. While the data may be dated now, Chapter 5, written by Peter Mueser, nevertheless highlights that non-cognitive skills, in particular in the form of self-assessed leadership, show to have a significant effect on wages but also cautiously abstains from singling out any one particular 'magic' trait. The data used for the study, Project Talent, was the largest and most comprehensive dataset on high school students in the US at the time and contained measures of personality based on the individual's self assessment, but also their behavior, attitudes, and assessments by others. Mueser remains cautious and aware that his regressions are not rigorous causal models but it makes an important contribution in demonstrating that non-cognitive/personality traits add more to personal achievement than past research had indicated. (...)
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Heckman, Humphries ... (2011) is in a way an extension to Heckman et al. (2006) since besides looking at labor market outcomes they look at further life outcomes such as health and social outcomes based on a model of sequential schooling decisions. They use a slightly altered definition of non-cognitive skills that they call socio-emotional ability, which comprises measures of adverse adolescent behavior and argue (based on previous literature) that early behavior is related to non-cognitive traits and hence captures traits hat help explain observed behavior. While the primary focus is to study the effect of educational choices on chosen outcomes, the inclusion of socio-emotional ability in the dynamic model indirectly demonstrates their important impact on the outcomes as well. Socio-emotional loadings are shown to have significant predictions of GPA and educational choices, and are significant for all the unconditional labor market models, except for labor force participation.
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Flossmann, Piatek, Wichert (2007) follow closely the methodology of Heckman et al. 2006 and find that non-cognitive skills (also) matter in the determination of wages in Germany, based on the 1999 wave of the German Social Economic Survey (GSOEP). Subject to data availability on non-cognitive skills Flossmann et al. (2007) exploit attitude questions closely related to the locus of control and use these (i) to construct a simple additive variable/ index for the non-cognitive skills of the individual (ii) for their measurement system to obtain the distribution of the latent factor and which is then used in the estimation to address endogeneity as well as measurement error concerns. There is no difference in effect of non-cognitive skills between men and women, revolving at a return of just under 4%.
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(...) The aim of this study is to explore the effect on non-cognitive skills on wages as well as the robustness of the returns to higher education estimate towards the inclusion of non-cognitive skills using the most recent cohort data available for the UK. The availability of questions in surveys regarding locus of control and self-esteem makes these traits the most commonly studied non-cognitive skills in relation to outcomes such as educational or economic success. The advantage of LSYPE is that it contains a variety of different attitude questions/ statements, that can be exploited for some principle component analysis and possibly give a better depth to the skills.
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