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Students' Wage Expectations in Germany - New Evidence considering Tax Adjusted Estimates

Author

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  • Pfeifer, Gregor
  • Witte, Stefan

Abstract

This paper uses a rich dataset derived from a three-year survey to gain insights about the informational background of University applicants. We analyze the extent to which students expectations of their starting and future salary depend on different characteristics. More precisely, the paper investigates whether students with different backgrounds tend towards making larger or smaller errors when estimating salaries. The results point out that students salary estimates are heterogeneous and that this variation is correlated with individual traits and chosen subjects. Overall, students substantially underestimate actual starting salaries by about 20 percent. However, a prime finding of this paper is that estimation errors are highly attributable to students misconception of the German progressive income tax system. Correcting for the erroneous gross-net conversion, we find applicants to have a quite correct idea about what salaries to expect in the future. Overall, applicants adjusted expectations are in line with labor market outcomes. However, expectations remain strongly correlated with personal traits.

Suggested Citation

  • Pfeifer, Gregor & Witte, Stefan, 2014. "Students' Wage Expectations in Germany - New Evidence considering Tax Adjusted Estimates," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100354, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc14:100354
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    File URL: https://www.econstor.eu/bitstream/10419/100354/1/VfS_2014_pid_743.pdf
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    References listed on IDEAS

    as
    1. Botelho, Anabela & Pinto, Ligia Costa, 2004. "Students' expectations of the economic returns to college education: results of a controlled experiment," Economics of Education Review, Elsevier, vol. 23(6), pages 645-653, December.
    2. Chevalier, Arnaud & Gibbons, Steve & Thorpe, Andy & Snell, Martin & Hoskins, Sherria, 2009. "Students' academic self-perception," Economics of Education Review, Elsevier, vol. 28(6), pages 716-727, December.
    3. Wolter, Stefan C, 2000. "Wage Expectations: A Comparison of Swiss and US Students," Kyklos, Wiley Blackwell, vol. 53(1), pages 51-69.
    4. Charles F. Manski, 1993. "Adolescent Econometricians: How Do Youth Infer the Returns to Schooling?," NBER Chapters,in: Studies of Supply and Demand in Higher Education, pages 43-60 National Bureau of Economic Research, Inc.
    5. Giorgio Brunello & Claudio Lucifora & Rudolf Winter-Ebmer, 2004. "The Wage Expectations of European Business and Economics Students," Journal of Human Resources, University of Wisconsin Press, vol. 39(4).
    6. Jeff Dominitz & Charles F. Manski, 1996. "Eliciting Student Expectations of the Returns to Schooling," Journal of Human Resources, University of Wisconsin Press, vol. 31(1), pages 1-26.
    7. Raj Chetty & Emmanuel Saez, 2013. "Teaching the Tax Code: Earnings Responses to an Experiment with EITC Recipients," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 1-31, January.
    8. Webbink, Dinand & Hartog, Joop, 2004. "Can students predict starting salaries? Yes!," Economics of Education Review, Elsevier, vol. 23(2), pages 103-113, April.
    9. John Jerrim, 2011. "Do UK Higher Education Students Overestimate Their Starting Salary?," Fiscal Studies, Institute for Fiscal Studies, vol. 32(4), pages 483-509, December.
    10. Menon, Maria Eliophotou, 2008. "Perceived rates of return to higher education: Further evidence from Cyprus," Economics of Education Review, Elsevier, vol. 27(1), pages 39-47, February.
    11. Julian R. Betts, 1996. "What Do Students Know about Wages? Evidence from a Survey of Undergraduates," Journal of Human Resources, University of Wisconsin Press, vol. 31(1), pages 27-56.
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    More about this item

    JEL classification:

    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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