This paper estimates the internal rate of return (IRR) to education for men and women of the Terman sample, a 70-year long prospective cohort study of high-ability individuals. The Terman data is unique in that it not only provides full working-life earnings histories of the participants, but it also includes detailed profiles of each subject, including IQ and measures of latent personality traits. Having information on latent personality traits is significant as it allows us to measure the importance of personality on educational attainment and lifetime earnings.
4.1 The Total Effect of Personality and IQ on Lifetime Earnings
We begin by analyzing how personality and IQ influence lifetime earnings. We use the sum of each individual's earnings from age 18 to age 75. ... With this simple regression, Conscientiousness and Extraversion are positively associated with earnings, while Agreeableness and Openness are negatively associated with earnings (although Openness fails to be statistically significant in this very simple exercise). Our measure of Neuroticism does not have a clear association with earnings. It is remarkable that even in this very high-IQ sample, where the range of observed IQs is clearly restricted, IQ still has a positive and statistically highly significant association with lifetime earnings.
Finally, note that even when controlling for rich background variable [such as education], IQ maintains a statistically significant effect on lifetime earnings. Even though the effect is slightly diminished from the uncontrolled association of the first column, it is still sizeable. Malcolm Gladwell claims rather generally in his book "Outliers" that for the Terman men, IQ did not matter once family background and other observable personal characteristics were taken into account. While we do not want to argue that IQ has a larger role for the difference between 50 and 100, for example, than for the difference between 150 and 200, we do want to point out that even at the high end of the ability distribution, IQ has meaningful consequences.
For these very smart termites, getting more education increases lifetime income.
One caveat about causality is in order... We partially follow this approach by using early measures of Openness and Extraversion. However, the other personality traits are measured at a time where the men are already in their working lives. Thus, these measures are more relevant to the observed earnings, but at the same time we cannot exclude the possibility that, for example, a high score on Neuroticism is a result of one's position in the workforce.