Unemployment duration and personality

Abstract

This paper focuses on the role personality traits play in determining individual unemployment duration. We argue that a worker’s job search intensity is decisively driven by her personality traits, reflected in her propensity to motivate and control herself while searching for a job. Moreover, personality traits, in as far as they can be signaled to a potential employer, may also enhance the probability of receiving and accepting a job offer.

For our econometric duration analysis, we use the well-accepted taxonomy “Big Five” to classify personality traits. Based on individual unemployment data taken from the German Socio-Economic Panel (SOEP) our empirical findings reveal that the personality traits Conscientiousness and Neuroticism have a strong impact on the instantaneous probability of finding a job, where the former has a positive effect and the latter has a negative effect. The direction of the effect on the subsequent employment duration is the opposite. We do not find any significant effects of the personality traits Extraversion and Agreeableness on the duration of unemployment. The personality trait Openness eases finding a job only for female unemployed workers and workers with migration background.

Introduction

The role played by personality traits in an individual’s success on the labor market has drawn considerable attention in labor economics. Recent empirical findings show significant effects of personality on various economic outcomes, such as earnings, labor force participation and employment probability. Comparatively little is known, however, about how personality traits affect the transition period from unemployment to the employment. We contribute to the discussion on the relation between personality and economic outcomes by looking at how the unemployment duration differs for people with different personality traits.

Traditionally, labor economists focus on incentive schemes, the role of labor market institutions and educational attainment in their analysis of the transition out of unemployment. Apart from the usual socio-economic control variables, individual heterogeneity is regarded as being important, particularly from an econometric point of view, but is usually considered to be unobservable. Ignoring individual differences such as personality traits, however, leads to the well-known spurious duration dependence of unemployment and possibly to misleading evaluations concerning public measures to increase the employability of the unemployed. Besides the role of the economic incentive scheme, which is central to all job search models, it is obvious that a number of additional, usually unobservable factors determine the success of finding a job. For instance, a worker’s job search intensity is not solely driven by economic incentives but also by the propensity to motivate and discipline herself while searching for a job. Moreover, personality traits, in as far as they can be signaled to a potential employer, may also enhance the probability of receiving and accepting a job offer. Therefore based on a conventional job search model with endogenous job search effort, we argue that the channels through which personality traits may effect a person’s transition from unemployment to employment are manyfold and may not only be linked to preferences (e.g. risk attitude, self-regulation), search costs (disutility of search) or the job offer arrival rate.¹ The individuals with certain traits might face lower search costs, which in turn may increase the optimum search intensity and the reservation wage. More intense search will increase the number of offers received, however the net effect on the unemployment duration is ambiguous due to the increased reservation wage. Workers with different personality traits may even face different wage offer distributions. For instance, the wage offer distribution for workers with a high degree of Openness may have fatter tails than the one for workers with a low degree of Openness. Therefore from a theoretical point of view the sign of effect of certain personality traits is ex-ante undetermined and remains to be tackled empirically.

In the following we use a reduced form approach to assess how different personality traits affect an unemployed individual’s instantaneous probability of finding a job. In particular, we try to work out the extent to which different dimensions of personality traits have an effect on transitions out of unemployment and on the duration of this subsequent employment. As mentioned in Bowles, Gintis, and Osborne (2001), traits might have different effects for women and men, or different ethnic or language groups. Therefore, we check the robustness of our findings by considering different subpopulations of the labor market (male and female workers, immigrants and natives). Furthermore, following the results by Barrick and Mount (1991), different occupations require different types of personality traits, we also explore the importance of personality traits on unemployment and employment duration for various occupational groups and sectors. By estimating employment durations for the formerly unemployed workers in our sample, we provide empirical evidence to what extent the same personality traits are beneficial in keeping the job.

The outline of the paper is as follows. Section 2 briefly reviews previous research on the relationship between personality traits and individual labor market outcomes. Section 3 focuses on the sample and some descriptive evidence. Section 4 briefly describes the econometric method used and elaborates on the empirical results. Finally, Section 5 summarizes the main results and concludes the paper.