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ARTHUR H. GOLDSMITH, JONATHAN R. VEUM, and WILLIAM DARITY, JR.*
Historically, economists have taken the position that psychological capital is either unobservable or unmeasurable; thus, heretofore, little evidence has been available on the contribution of psychological capital to wages. Using data drawn from two different waves of the National Longitudinal Survey of Youth, we offer evidence that psychological capital has both a direct effect-via self-esteem-and an indirect effect-through locus of control-on an individual s real wage. We find a person's wage is more sensitive to changes in self-esteem than to comparable alterations in human capital. Both relative wages and human capital contribute to self-esteem. (JEL E24, J6)
I. INTRODUCTION AND STATEMENT OF THE PROBLEM
Economists have a long standing interest in the determinants of real wages. Mincer [1962] and Becker [1964] suggested that personal productivity, and hence real wages, depend critically on human capital accumulation. Wages also are likely to be influenced by psychological capital-those features of personality psychologists believe contribute to an individual's productivity. These may include a person's perception of self, attitudes toward work, ethical orientation, and general outlook on life.
Economists acknowledge that the influence of personality on productivity is detectable and is rewarded by employers. But most economists, unlike psychologists, have taken the position that personality is either unobservable or unmeasurable. Rather than find ways to represent psychological capital in wage equations, economists have developed empirical techniques that yield consistent coeffcient estimates of observable determinants of wages when other aspects of individual-specific heterogeneity are treated as omitted variables. 1
However, if the unobservables include features of personality that fluctuate over time and are correlated with the observables, the standard approaches to eliminating heterogeneity bias will be ineffective. To the extent that this is the case, economists can offer neither consistent estimates of the effect of human capital accumulation on wages nor evidence on whether elements of psychological capital are related to wages. As a result, little is known about the relative contributions of psychological and human capital to wage levels.
Recently, however, psychologists have developed and validated measures of various components of psychological capital making it possible to "observe the unobservable." Some of these measures are available in the National Longitudinal Survey of Youth (NLSY). These measures make it...