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Biased Wage Expectations and Female Labor Supply

Author

Listed:
  • Maximilian Blesch

    (HU Berlin and DIW Berlin)

  • Philipp Eisenhauer

    (Amazon)

  • Peter Haan

    (FU Berlin and DIW Berlin)

  • Boryana Ilieva

    (HU Berlin and DIW Berlin)

  • Annekatrin Schrenker

    (FU Berlin and DIW Berlin)

  • Georg Weizsäcker

    (HU Berlin)

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.

Suggested Citation

  • Maximilian Blesch & Philipp Eisenhauer & Peter Haan & Boryana Ilieva & Annekatrin Schrenker & Georg Weizsäcker, 2023. "Biased Wage Expectations and Female Labor Supply," Rationality and Competition Discussion Paper Series 411, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:411
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    More about this item

    Keywords

    returns to experience; biased beliefs; part-time work; dynamic life-cycle models;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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