A Dynamic Model of Personality, Schooling, and Occupational Choice

This paper develops a dynamic discrete choice model of schooling and occupational choices that incorporates time-varying personality traits, as measured by the so-called “Big Five" traits. The model is estimated using the HILDA longitudinal dataset from Australia. Personality traits are found to play a critical role in explaining education and occupation choices over the lifecycle. The traits evolve during young adult years but stabilize in the mid-30s. Results show that individuals with a comparative advantage in schooling and white-collar work have, on average, higher cognitive skills and higher personality traits, in all five dimensions. The estimated model is used to evaluate two education policies: compulsory senior secondary school and a 50% college subsidy. Both policies are found to be effective in increasing educational attainment, but the compulsory schooling policy provides greater benefits to lower socioeconomic groups. Allowing personality traits to evolve with age and with years of schooling proves to be important in capturing policy response heterogeneity. JEL: C54, J24, I24, I28