Effects of behavioural and psychological attributes on labour market outcomes in an uncertain economic environment

Matsuro, Leon (2020-03)

Thesis (PhD)--Stellenbosch University, 2020.

Thesis

ENGLISH ABSTRACT : The power of human capital variables in predicting an individual’s economic success is well documented theoretically and empirically. However, recently, economists have acknowledged that even with a rich set of controls, residual differences remain unexplained by traditional economic variables. A more recent effort incorporates insights from neighbouring social sciences, including personality psychology, in examining an individual’s life outcomes. At the center of this research has been the role of unobservable individual heterogeneity, in particular behavioural and psychological attributes. There is, however, a substantial imbalance in the geographical distribution of this research; the evidence is mostly limited to developed countries, which differ systematically from developing countries. This dissertation aims to address this imbalance. It examines the role of behavioural and psychological attributes in explaining an individual’s labour market outcomes in an emerging economy characterized by uncertainty. The dissertation introduces a novel Zimbabwean matched employer-employee data set that captures key variables of workers’ behavioural and psychological attributes. It derives measures of workers’ Big Five personality traits, risk and time preferences, and examines their role in explaining labour markets outcomes in the Zimbabwean manufacturing sector. Chapter 2 employs a factor analytical strategy to extract five personality factors from a 15-item Big Five Inventory. The factors - Openness, Conscientiousness, Extraversion, Agreeableness and Neuroticism, commonly known as the Big Five - represent the broad dimensions of abstracting an individual’s personality. The factor model passes fitness tests, and the extracted factors retain acceptable levels of internal reliability. In addition, the factors mirror the universal distribution of the Big Five personality traits by age and gender. Chapter 3 examines the role of the Big Five personality traits in explaining labour market outcomes in the Zimbabwean manufacturing sector. To do this, the study controls for the Big Five personality traits in models that estimate sectoral selection, earnings, and job mobility. The empirical findings show that personality traits explain the three labour market outcomes over and above the traditional economic variables. Chapter 4 uses experimental data to construct a risk aversion measure and examines its role in explaining job mobility. The study confirms the empirical findings that risk tolerant individuals are more likely to experience job mobility, as compared to their risk averse peers. This result is robust to a set of controls, including industrial sector fixed effects. Chapter 5 computes measures of worker’s time preferences (exponential and hyperbolic discount rates) and examine their role in explaining outstanding salaries. The empirical results suggest that individual and job characteristics - rather than time preferences - explain outstanding salaries. Chapter 6 simultaneously controls for personality traits, risk, and time preferences in labour market outcome models. The study finds empirical support for the simultaneous inclusion of behavioural and psychological attributes in labour market models. Overall, the analysis shows that behavioural and psychological attributes constitute important individual characteristics that are central to the analysis of labour markets.

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