Monozygotic twins: Standard OLS method may over-estimate the relation between personality and income; neuroticism is related to lower permanent income; and a facet of extraversion (activity) is related to higher permanent income

Is personality related to permanent earnings? Evidence using a twin design. Terhi Maczulskij, Jutta Viinikainen. Journal of Economic Psychology, https://doi.org/10.1016/j.joep.2018.01.001

Highlights
•    We study the relation between personality and permanent income using twin data.
•    Twin desing allows us to control for shared genetic and family effects.
•    Standard OLS method may over-estimate the relation between personality and income.
•    Within-MZ estimates show that neuroticism is related to lower permanent income.
•    A facet of extraversion (activity) is related to higher permanent income.

Abstract: Using twin survey combined with register-based panel data on labor market outcomes, the authors examine the association between personality characteristics and long-term earnings among prime working-age individuals. The long-term earnings were measured over the 1990-2008 period. The sample contains 4,642 twin pairs, of which 53% are females. In contrast to previous studies, this paper uses the within-twin dimension of the data to control for shared family background and confounding genetic factors. The results suggest that unobserved genetic differences may introduce omitted variable bias in standard ordinary least square results. After controlling for shared environment and genetic background, the authors find that a facet of extraversion (activity) is related to higher (β = 0.046), and neuroticism is related to lower (β = -0.060) permanent earnings in the labor market. The lower earnings of more neurotic individuals are likely explained by the weaker attachment in the labor market.

Keywords: personality; earnings; labor market outcomes; unobserved heterogeneity; twin studies