People People

Bas ter Weel, MERIT, Maastricht University

There are many indicators that interpersonal interactions are important for understanding individual outcomes and are becoming more important in recent decades. Yet, empirical work suggests that the returns to interpersonal interactions have remained low or even negative and people people have not progressed to the top of the job hierarchy. This paper develops a framework to understand the role of interpersonal interactions in the labor market, including task assignment and wages, and the labor-market position of women and ethnic minorities. We model the effectiveness of interactions between people as a trade-off between caring and decisiveness in which both inputs into interpersonal interactions can be either beneficial or detrimental. Caring is needed to build up confidence and establish cooperation, but is vulnerable to losing proximity in case others have to be criticized; decisiveness is needed to provide plain information in a non-oblique and non-evasive manner. An analysis of occupation changes in the importance of caring and decisiveness over time suggests that both inputs in effective interpersonal interactions are increasing but decisiveness to become relatively more important than caring. In accordance with the rising relative input of decisiveness, the returns to being decisive are relatively increasing. Consistent with our model, we find that as the caring-type of interpersonal interaction becomes relatively more important, the women’s share of an occupation increases, but the employment shares of blacks, Hispanics, immigrants, and people with poor English decrease. We also show in an assignment context that within relatively caring jobs, the relative importance of caring is positively rewarded but that overall labor demand and supply may lead to a negative effect of being relatively caring on wages. We present evidence that within occupations that have experienced a faster increase in computer technology adoption the importance of interpersonal interactions has become more important, especially the importance of decisiveness. Lastly, we present evidence that persons who are more sociable at young ages are more likely to supervise others at work, less likely to have supervisors themselves, and have greater authority over the people they supervise.

Date: 07 September-00 0000