Biased Wage Expectations and Female Labor Supply

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IZA Seminar

Place: Zoom Seminar

Date: 17.11.2020, 14:00 - 15:15


Presentation by 

Peter Haan (DIW Berlin)

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Meeting ID: 874 8721 3161



We analyze how biased beliefs about future wages affect individual decisions in a dynamic setting. Specifically, we quantify the effects of biased expectations regarding wage growth in part-time employment on labor market outcomes in Germany. Based on customized elicitation of expectation data, we document that both full-time employees and part-time employees have expectations about wage growth in part-time employment that are severely upward biased: they do not realize that wage growth occurs almost exclusively in full time. Empirically, wage growth rates in part-time work are close to zero, as we show both with reduced form estimations and a structural life-cycle model. The structural life cycle model allows for bias in expectations about retruns to experience and quantifies how the bias drives labor supply choices and wage profiles. The bias increases part-time employment by 15 percent and induces flatter long-run wage profiles for about seven percent of the population.

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