Friday, 24 June 2022

Narrowing down on the source of the beauty premium

I've written a number of posts about the beauty premium (see the links at the bottom of this post) - that more attractive people are paid more, on average. There is robust evidence for this beauty premium across many labour markets, and for both genders and different ethnic groups. However, evidence for the specific mechanism underlying the beauty premium remains elusive. There are a few different theoretical reasons that beauty premiums may arise. First, employers may engage in taste-based discrimination - they like attractive employees, so they pay them more. If that were the case, we would see beauty premiums in all jobs. On the other hand, perhaps attractive people are more productive (in the sense that they generate more value for employers). This might be the case for customer-facing roles, for example. If that were the case, then we would see beauty premiums in jobs that require more human interaction, but no premiums in jobs with less human interaction.

That is essentially the test undertaken in this 2019 article by Ralph Stinebrickner (Berea College), Todd Stinebrickner (University of Western Ontario), and Paul Sullivan (American University), published in the journal Review of Economics and Statistics (ungated earlier version here). They use data from the Berea Panel Study, which included just over 500 students who first enrolled in Berea College in 2000 or 2001, and surveyed them each year after graduation (for up to ten years for some students). Because they can link the survey data back to students' characteristics during study, including their student ID picture, they are able to measure both labour market outcomes and attractiveness. Importantly, the surveys asked about the specific tasks that the graduates are undertaking in their jobs, allowing Stinebrickner et al. to classify jobs based on the actual tasks that are undertaken, rather than based on job titles. This reduces the measurement error from misclassifying whether the graduates are in people-centred jobs or not. Stinebrickner et al. classify all jobs into:

...four groups on the basis of jobs’ primary tasks: two groups where the primary task involves interpersonal interactions (high-skilled People and low-skilled People) and two groups where the primary task does not involve interpersonal interactions (high-skilled Information and low-skilled Information).

Each graduate's attractiveness was based on the average of 50 evaluators' ratings of their student ID picture, rated on a scale of 1 (significantly below average) to 5 (very attractive). They then run a fairly standard regression of wages on attractiveness, controlling for college GPA (which essentially accounts for differences in ability and motivation). Stinebrickner et al. focus most of the analysis on the sample of female graduates (because the sample size is much larger than for male graduates). For women, they find that there is:

...a large, statistically significant coefficient on the attractiveness measure. Specifically, increasing attractiveness by 1 sample standard deviation (0.78 on the 5-point scale) is associated with a 7.8% increase in wages...

The corresponding estimate for men is a 6.8% increase for each standard deviation higher attractiveness. Those results are consistent with the other literature on the beauty premium. However, of more interest are the results based on the different job classifications, where Stinebrickner et al. find that:

Providing very strong evidence that the attractiveness premium should not be attributed to an employer taste-based explanation, the results show that attractiveness has a strong effect on wages in jobs that specialize in People tasks but not in jobs that specialize in Information tasks. Specifically, a 1 standard deviation increase in attractiveness leads to a 9.7% wage increase in high-skilled People jobs... and a 9.3% wage increase in low-skilled people jobs (column 2)... In sharp contrast to the large wage premiums in People jobs... [the results] show no evidence of an attractiveness premium in Information jobs. Specifically, the coefficients on attractiveness for high- and low-skilled Information jobs are 0.011 and −0.039, and neither parameter is statistically significant...

Stinebrickner et al. also find that attractive people tend to sort themselves into people-related jobs:

The estimates of the marginal effects... show that increasing attractiveness by 1 standard deviation increases the probability of having a primary task of People by 0.053...

...these estimates indicate that attractive individuals are more likely to choose to work in both high-skilled People jobs and in low-skilled People jobs than in low-skilled Information jobs.

As noted above, if the beauty premium arises because of employers' taste based discrimination, then there would be a beauty premium for all jobs. But Stinebrickner et al. only find a beauty premium for jobs that involve mostly interpersonal interactions, and not for jobs that are mostly information-related. That is consistent with a productivity explanation. However, Stinebrickner et al. sound a note of caution:

While we tend to refer to the alternative to this explanation as a productivity-based explanation, it is worth stressing that it is difficult, even from a conceptual standpoint, to distinguish between a productivity based explanation and a customer taste-based discrimination explanation. To help fix ideas, consider a standard textbook-type example in which a customer is willing to pay more to interact with an attractive server in a restaurant. This preference might be viewed as productivity based if the attractiveness leads to more efficient employee-customer interactions that help a customer arrive at the best possible food order. Or this preference might be viewed as customer taste-based discrimination if attractiveness does not influence the customer’s order, but the customer simply enjoys looking at a more attractive employee.

The existence of only fairly nuanced differences between the two scenarios in the example highlights why it will always be difficult to conclusively distinguish between the customer discrimination and productivity-based explanations...

So, Stinebrickner et al. have provided us with a bit more detail on the source of the beauty premium. It arises either from higher productivity of more attractive workers in people-facing roles, or from customer taste-based discrimination. Unfortunately, because we can't disentangle those two explanations, we are left without an answer to the important policy question of whether the beauty premium leads to inefficiency (as it would if based on customer taste-based discrimination) or not, and so there is no strong evidence to favour any intervention in the market to limit or reduce the premium.

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