Economists spend a lot of time investigating the factors that make people more productive. This is because more productive people – producing more, with less – is the reason we can today afford a much higher standard of living than our ancestors – in Africa, India or Europe – two centuries ago.
Many things improve our productivity. Technological improvements like a computer can allow us to use the power of machines to substitute manual labour. Education allow us to build faster and stronger computers. Both technology and education are key if we are to continue building and sharing a prosperous future.
But it is not only technology and education that improve our living standards. There are formal and informal institutions – things like the criminal-justice system, property right regimes and the political system – that create the incentives for us to invest in technology and education. And there are the even less tangible things, like the way we make decisions (often referred to as ‘culture’), or our personalities. Economists are only now beginning to explore the roots of these ‘soft’ determinants.
Psychologists have known for long that our personality affect the way we make decisions. One example: Whether we apply for that senior position may depend on whether we exhibit the leadership qualities that is required to lead a large team. But what determines whether we have those leadership abilities? Is it nature or nurture?
One option is to look at siblings. If genetic traits (nature) were the only source of leadership qualities, then almost all the variation we find in society would be between families. In other words, there should be little variation between brothers, for example, as they have a lot of genetic overlap.
This is not the case, however, at least according to a recent NBER Working Paper written by three economists, Sandra Black, Björn Öckert and Erik Gröngqvist. Almost a third of total variation in personality traits, they note, are within the family. So, if it is not only nature that determine much of your personality, where do these within-family differences come from?
One possibility, they argue, is birth-order. Using a very rich Swedish dataset, the authors find that first-born children are ‘advantaged’ when measured on their ‘emotional stability, persistence, social outgoingness, willingness to assume responsibility and ability to take initiative’. Note: these are non-cognitive abilities, i.e. there is little difference in terms of a first-born and a third-born’s innate ability to do math, for example. It is on the softer abilities, instead, that first-borns clearly outperform their lower-ranked siblings: third-born children, for example, have non-cognitive abilities that are 0.2 standard deviations below first-born children.
These non-cognitive abilities matter. Controlling for many things, they show that first-born children are almost 30% more likely to be Top Managers compared to third-borns. This is because managerial positions, they argue, tend to require all Big Five domains of personality: openness to experience, conscientiousness, extraversion, agreeableness, and emotional stability.
But why does birth-order matter? The authors argue for largely three possible reasons. First, biology. Successive children may have less of the stereotypical male behavioural traits due to the mother’s immunization to the H-Y antigen. But this seems unlikely to explain most of the variation, as the authors also find that birth order patterns vary depending on the sex composition of the older children: third-born sons perform worse on non-cognitive tests when their older siblings are male compared to when they are female.
This suggests that it has something to do with how parents allocate their time and resources, especially in the early years. ‘First-born children have the full attention of parents, but as families grow the family environment is diluted and parental resources become scarcer’, the authors argue. Parents may also have incentives for more strict parenting practices towards the first born to ensure a reputation for “toughness” necessary to induce effort among later born children.
Thirdly, children may also act strategically in competing for parental resources. Siblings compete for possession of property and access to the mother. Older siblings, research shows, tend to take a more dominant role in conflict and have more elaborate conflict strategies. To minimise conflict, parents tend to invest more in the dominant, older sibling.
Using a novel approach, the authors can identify which of these effects is largest. They find that biological factors only explain a small part, and may actually benefit later-born children. It is however in the behaviour of parents that there are distinct differences between first- and later-born children: they find that later-born children spend substantially less time on homework and more time watching TV. Parents are also less likely to discuss school work with later-born children, suggesting that it is the parents that lower their investment which explains the large gap in non-cognitive skills.
What the authors do not do is to link their results with the general improvement in living standards over the last two centuries. We are becoming ‘better angels of our nature’ because we grow up in smaller families with more parental attention and resources, improving our non-cognitive abilities.
It is not only the vast improvement in technology and education that has made us more productive, but also because we have become more conscientious, agreeable, responsible and willing to take the initiative. We are rich, in part, because we are more emotionally intelligent.
*An edited version of this first appeared in Finweek magazine of 1 June 2017.