Biased Wage Expectations and Female Labor Supply

Blesch, Maximilian; Eisenhauer, Philipp; Haan, Peter; Ilieva, Boryana; Schrenker, Annekatrin and Weizsäcker, Georg (27. July 2023): Biased Wage Expectations and Female Labor Supply. Collaborative Research Center Transregio 190, Discussion Paper No. 411

Abstract

Wage growth occurs almost exclusively in full-time work, whereas it is close to zero in part-time work. German women, when asked to predict their own potential wage outcomes, show severely biased expectations with strong over-optimism about the returns to part-time experience. We estimate a structural life-cycle model to quantify how beliefs influence labor supply, earnings and welfare over the life cycle. The bias increases part-time employment strongly, induces flatter long-run wage profiles, and substantially influences the employment effects of a widely discussed policy reform, the introduction of joint taxation. The most significant impact of the bias appears for college-educated women.

• Item Type: Paper
• Keywords: returns to experience; biased beliefs; part-time work; dynamic life-cycle models
• Faculties: Economics > Collaborative Research Center Transregio "Rationality and Competition"
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: D63, H23, I24, I38, J22, J31
• Language: English
• DFG: Gefördert durch die Deutsche Forschungsgemeinschaft (DFG) - 280092119