Young men & women overestimate their future wages; when given realistic future wage information, women properly adjust down, but men adjust even further up

Gender differences in wage expectations. Ana Fernandes, Martin Huber, Giannina Vaccaro. PLoS One, June 2, 2021. https://doi.org/10.1371/journal.pone.0250892

Abstract: Using an own survey on wage expectations among students at two Swiss institutions of higher education, we examine the wage expectations of our respondents along two main lines. First, we investigate the rationality of wage expectations by comparing average expected wages from our sample with those of similar graduates; further, we examine how our respondents revise their expectations when provided information about actual wages. Second, using causal mediation analysis, we test whether the consideration of a rich set of personal and professional controls, inclusive of preferences on family formation and number of children in addition to professional preferences, accounts for the difference in wage expectations across genders. Results suggest that both males and females overestimate their wages compared to actual ones and that males respond in an overconfident manner to information about realized wages. Personal mediators alone cannot explain the indirect effect of gender on wage expectations; however, when combined with professional mediators, this results in a quantitatively large reduction in the unexplained effect of gender on wage expectations. Nonetheless, a non-negligible and statistically significant direct (or unexplained) effect of gender on wage expectations remains in several, but not all specifications.

6 Conclusion

Using novel survey data from students from the Business School of the Bern University of Applied Science (BUAS) and the Faculty of Economic and Social Sciences of the University of Fribourg, this paper advances the literature related to gender differences in wage expectations in two specific ways. First, it determines whether these gender differences are rational by comparing expected wages from our respondents to realized wages from comparable graduates; and, further, by investigating how respondents adjust their wage expectations when information about actual wages is provided. Second, using an inverse probability weighting method in the context of causal mediation, it examines whether the consideration of a rich set of professional and personal controls accounts for the difference in wage expectations across gender.

In line with the literature, we confirm the presence of gender differences in wage expectations in our survey results. The difference between male and female expected wages is about one salary class (CHF500) upon graduation and roughly 1.4 salary classes three years thereafter (roughly 19 and 17% of female average expected wages, respectively). The evidence suggests that both males and females overestimate their wages relative to realized wages from comparable graduates. Further, results from an information intervention—about median wages earned in Switzerland—show that males alone (incorrectly) revise their expected wages upward by about 0.6 of a salary class (CHF300) when forecasting wages three years after graduation. This is possibly the result of over-confidence.

Using mediation analysis (which permits explicating endogeneity issues), we find that the inclusion of a rich set of personal and professional mediators—not commonly included in survey data—greatly reduces the direct, unexplained effect of gender on wage expectations. While personal mediators alone do not contribute to the indirect effect of gender on wage expectations, when added to professional mediators they lead to a reduction of about 30% in the contribution of the direct effect of gender on wage expectations and to a similar increase in the indirect effect (when the decomposition of these effects takes the male as the reference). Further, when professional and personal mediators are jointly considered, the direct, unexplained effect of gender is greatly attenuated, both in size as well as in statistical significance. Nonetheless, a non-negligible and statistically significant direct (or unexplained) effect of gender on wage expectations remains in several, but not all specifications. Our results are stable under different specifications and trimming thresholds.