The Economics of Beauty

Economics of Beauty

What if I told you that you were going to make 5 to 10% less than your coworker for doing the same exact job. It's not because of your skin color nor is it because of your gender. No, you make that much less because your coworkers are considered “more attractive” Ridiculous, right? Turns out that being considered “attractive” helps you earn more money or helps you get a better mortgage (Hamermesh. NYT Op-ED 2008)

A recent paper I read by Galina Hale, Tali Regev, and Yanda Rubinstein finds that attractiveness has a significant impact on job outcomes of Ph.D. graduates. Graduates that are considered more attractive are placed at higher ranked institutions and are cited more often.

After reading this paper I wondered if this bias is found in other industries. This lead me to read Daniel Hamermesh’s book Beauty Pays where he discusses how this beauty discrimination occurs in other professions.

Determining Wage

First, let’s evaluate what economics has to say about how wages are determined. If you assume competitive markets, where information is readily available to all participants, then an individual’s wage should be equal to the additional value that they bring to the firm. It is assumed that this value is equal to a monetary return. Here is an example, if a firm increases its productivity by adding you on, then you should earn $40,000.

Economists believe that for a firm to increase profits they must hire additional workers. This concept is called the marginal product of labor. There are two important parts to the marginal product of labor: first, the efficiency of labor to increase in revenue diminishes with each worker added. Second, firms will only hire more workers as long as the wage is less than or equal to the marginal product of labor.

Marginal Product Graph from IB Economist

This is not how it is working though. Research on discrimination finds that there is difference between how much people get paid for the same job. The racial wealth gap and the gender wealth gap are well documented. Researchers are still working on figuring out how much the gap is, it is well accepted that under-represented minorities and women receive lower wages.

Beauty Discrimination

In 1994, Dan Hamermesh and Jeff Biddle wrote a paper on the topic of beauty discrimination. The paper, Beauty and Labor Market, examined the impact of looks on earnings. They found:

Plain people earn less than average looking people, who earn less than good-looking people

When a person is considered plain looking they have a 5-10% wage reduction. This findings hold for both men and women. There is some difference between men and women. For women, being unattractive is also associated with lower rates of labor force participation and are likely to marry men with less education. Hamermesh and Biddle show that attractiveness discrimination is largest in work that requires public interaction. Jobs like sales and lawyers sees more of beauty discrimination. Though the discrimination is still present in work that doesn’t require beauty to succeed.

Another research paper from Markus Mobius and Tanya Rosenblat looks further into this beauty premium. They find that being a “physically attractive person is more confident. This confidence makes employers consider them more able for the work, and people considered more attractive have better communication and social skills.

There are obviously a lot of questions left unanswered here. How do you determine “attractiveness”? The paper goes into more detail, but this research has increased the amount of new research testing for this effect. What we do know is subjective “attractiveness” varies by race, culture, and it might be correlated with other forms of discrimination.

How to move forward?

In free market economics, any situation where wage does not equal the value of additional productivity would not be sustainable. However, this is not the case. Labor markets lack perfect information, and free entry and exit, two of the most important assumptions of free markets. Try asking people about their wages… how do you think that conversation would go?

In economics, when markets fail, one possible solution is to regulate the market. But how do we regulate beauty, a subjective measure, in the labor market? Hamermesh argues that beauty discrimination is no different from racial or gender discrimination and unattractive people should be legally protected.

The Arguments Against

Some argue that more attractive people do in fact act more value to the firm. Being more attractive is associated with higher levels of confidence, and better social, or soft, skills. This might be beneficial in outward facing jobs like sales, law, or consider any job that requires interaction with the public. 

Since beauty is subjective, if we want to offer legal protection for “ugly” people how is it determined? There are no standard measurements that we can use to determine someone’s attractiveness.

If protections for attractive people would come about we would face a trade-off. It would require allocating government resources from groups that have already been protected.

Conclusion

No wonder our society is obsessed with looks. It turns out that beauty pays. Higher wages, better jobs, and for academics more citations.

If you are interested in learning more about the topic I highly recommend reading Daniel Hamermesh’s book Beauty Pays which can be found at here.

This topic and video are sponsored by the EI District. The EI District is a leading entrepreneurship consulint firm. Its mission is to increase small business and entrepreneurship activity. Learn my about the EI District by visiting their website.