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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 [PDF, 1MB]

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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.

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