Genes and the feeling for money

TU study examines influences on perceived income justice

2020/05/18

Whether people perceive their income as fair is not only important for themselves but also for the labour market. But which factors – environment or genetics – influence the perceived income justice? Professor Michael Neugart and doctoral student Selen Yildirim from the Institute of Public Economics and Economic Policy at the Department of Law and Economics investigated this question. They published the sometimes surprising results of their research in the journal “Economics and Human Biology”.

Environment or genetics – what influences perceived income justice?

For their study “What determines perceived income justice? Evidence from the German TwinLife study” Selen Yildirim and Michael Neugart used data from the German twin study. 926 twins of the same sex, 57 percent of whom were identical, answered the question of whether they considered their current gross income in relation to their work to be fair, unfairly too high or unfairly too low. In the interview, Selen Yildirim talks about the results of the research.

You researched perceived income justice. Why do you study heritability of preferences?

Economic preferences have a great importance for individual decision-making, and we wanted to go to the roots of these preferences. It is important to understand whether preferences are inherited via genes or are shaped via environmental factors. What we know is that they vary considerably between and within countries. Some economic traits, such as risk and saving behavior, have already been studied to find genetic and environmental contributions. Although perceived income justice has shown to play an important role in labor economics and beyond, the origins of it had remained unexplored. We made use of a fairly recent data set to elicit the genetic determinants of people's preferences for income justice.

Marcel Eckardt
Picture: Marcel Eckardt

What are the results of your study? And were there any surprises?

We found that the genes contribute with more than 30 percent to the variation in people's perceived income justice. It was surprising that the remaining variation was associated with the non-shared environment, and the familial environment does not contribute to the variation at all. One would expect that parents attempt to mold their children’s preferences according to their own preferences. However, our results suggest that the common environment twins were raised in is not related to how they assess income equality.

Genes influence whether people perceive their income as fair. So are there “born low earners” who are satisfied with little? Or do influences from the environment ultimately play the decisive role?

We found an important contribution of genes to the assessment of income fairness. However, we should be careful about the interpretation. Our results only suggest that some people are more prone to assess their income as unfair regardless of whether they are high or low earners. We might only claim that there are “born fairness sensitive” people. Also, it should be noted that the remaining 70 percent of the variation are associated with the non-shared environmental factors. Meaning that although this preference is partly inherited via genes, the environment contributes to even larger part of the observed variation in the twins' answers on perceived income justice.

What significance does it have for the labour market and the economy whether people perceive their income as fair?

The fair wage hypothesis was introduced by George Akerlof in 1982 and George Akerlof and Janet Yellen in 1990. They relate the effort choices of workers to perceived fairness of their income. It is argued that people who perceive their income as unfair reduce their work-related effort. Their hypothesis has been strongly supported by experimental studies. Moreover, we know that income unfairness is not only related to effort choice but also to job quits and well-being of workers. It has been shown that workers who perceive their income as unfair are more likely to suffer from sleeping disorders, stress-related diseases and cardiovascular health problems.

The people who provided the data for your study are still quite young – the oldest were around 30 years old, the average age was around 22 years – and, at around 1400 Euros gross on average, earned considerably less than the average income in Germany. Do age and level of income play a role when it comes to perceived justice?

It is a fair concern that having older people in our sample might lead to different results. What one observes in the literature is that the familial environment loses its importance over time and non-shared environment contributes more to the observed variation in people’s traits. We have zero contribution of familial environment, which is already the lower bound. In our study, we compare young people with other young people controlling for observable factors such as income. Thus, here is very likely no other reason but genetics why young monozygotic twin pairs are more likely to have the same assessments about their income fairness compared to young dizygotic twin pairs.

Questions by Silke Paradowski

The Publication

What determines perceived income justice? Evidence from the German TwinLife study. In: Economics & Human Biology, Vol. 36, Jan 2020.