Understanding Female Employment and Wages in Indonesia: The Importance of Accounting for Non-cognitive Skills

Traditional female labour force participation (FLFP) models have predominantly assessed socio-demographic, cultural, and educational factors in relation to employment outcomes, with research focusing mainly on developed countries despite low FLFP rates in many developing and Muslim-majority nations. This study investigates how non-cognitive skills shape women’s labour market outcomes in Indonesia, a middle-income, Muslim-majority country where female labour force participation remains relatively stagnant despite rising educational attainment. Using data from the Indonesia Family Life Survey (IFLS5), we analyse how Big Five personality traits influence both labour force participation and wages for married and unmarried women. We address the methodological concern of sample selection bias in wage estimations by implementing Heckman’s two-step procedure. Our findings reveal that personality traits significantly affect labour market decisions differently across marital status: extraversion (+ 3.1%) and lower neuroticism (+ 1.8%) predict greater participation for married women, while conscientiousness (+ 7%) is the primary predictor for unmarried women. For wages, neuroticism shows a substantial negative effect (-33.7%) for unmarried women, with minimal personality effects observed for married women. Importantly, models omitting personality traits demonstrate inflated effects of education on labour force participation and wages, suggesting omitted variable bias in conventional analyses. These results emphasize that labour market outcomes are determined not only by formal education but also by behavioural traits that operate differently across life stages, highlighting the need for more nuanced educational and labour policies in developing contexts.