The Economics of Being Pretty

In an article entitled “the business case for hiring the fat and the ugly”, the Financial Times’ management columnist, Lucy Kellaway, reported on the results of recent research on “looks” and prospects of employment. The story is interesting and entertaining. Apparently, being good looking, tall and muscular, if you are a man, or thin and blonde, if you are a woman, makes a significant difference in both the chances of finding a job and earning a higher salary.

The “beauty premium” has been estimated to be about 10-20% of income. Kellaway cites a study that blonds earn 7% more. Thinness also carries a premium. A team from New York University found that an “1% increase in body mass apparently results in a 0.6% fall in income.”

Other studies have found that American male politicians tend to have more hair than other men of the same age on average. Good looks seem to be important if your face has to appeal to voters who are less interested in the constantly shifting shades of political positions.

Perhaps these findings are evidence of the human infatuation with appearance. This in itself is neither new, nor surprising. Nor, is it surprising that some studies have also found that “the beautiful were no better” than the plain employees in problem solving. Beauty does not correlate with brains.

That, however, immediately raises a question. Why are employers keener in hiring better looking people if they have no superior skills or higher intelligence than uglier ones?

Kellaway does not provide an answer to this question. She reaches a different conclusion which is quite intriguing and worth quoting in full. “Yet from an employer’s point of view, there is a different lesson to be drawn from biological economics. The rational thing to do is to exploit the bias in the market. To let everyone else pay a premium for towering beauties and to employ only the short, the badly dressed and the squeaky-voiced. They will be as good at their jobs as the beauties. But they will be more loyal. And they’ll be a good deal cheaper, too.”

There are, however, two problems with this conclusion. First, it is partial equilibrium. It may work in the short-term, but not in the long-term. As employers hire more ugly people, their salaries will rise and the difference between pretty and ugly will disappear. This is the equilibrating function of the market. You can exploit discrepancies in market prices, but the act of exploiting them itself will eliminate them.

Second, and most importantly, it presumes that employers who hire pretty people are stupid. They pay over the odds to hire people who are no better than the average. But are they really so stupid?

Economics does not claim that companies and consumers are always right or that they never make mistakes. It only claims that mistakes are not persistent and that if any mistakes are made, the market will eliminate those who make them. Therefore, what is the reason for hiring pretty people and if there is no benefit, why are the firms that hire them not penalised by the market?

To put it differently, if firms voluntarily incur an extra cost burden by hiring prettier but no more competent people they should eventually go bankrupt. The market eliminates the less efficient. If they are not eliminated, then they must have a compensating advantage somewhere else. Do pretty people have a function that has not yet been discovered? Is it that prettier people are better at interfacing with customers? Or do firms that hire them have some other advantage? Well, we do not know yet.

But it is too easy and sloppy to assume that there are gains that are left unexploited without any apparent market failure [i.e. firms do not hire ugly people] or that there are excess costs which are not eliminated by the market [i.e. firms that hire pretty people].

Phedon Nicolaides

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