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A new paper in the Quarterly Journal of Economics, published by Oxford University Press, indicates that an important part of the pay gap between men and women has to do with how they conduct job searches, with women more likely to accept job offers early while men tend to hold out for higher pay.
Women in the United States earn 84% of what men earn, as of 2020. This disparity is well documented, and economists and the general public have known about the earnings difference for decades. The reasons for this phenomenon are a matter of considerable debate.
Initial conditions in the labor market are long-lasting. Young workers who begin their careers during a recession face lower wages for at least 10 years relative to cohorts that entered during better economic times. Since workers typically switch jobs several times over their lives, personal characteristics that matter in early-career job searches (i.e., risk aversion and biased beliefs about their earning potential) will likely matter for subsequent job searches.
Since looking for a job is a complicated process that involves considerable uncertainty, differences in preferences and beliefs by gender are likely to lead to different job search behavior and outcomes. Nevertheless, economists know surprisingly little about how these attributes contribute to gender differences in early-career gender pay gaps.
A likely reason for this is that researchers usually have limited information on job search behavior throughout the job search process, the offers that people receive, and measures of risk aversion and biased beliefs. Even in cases where such information is available, the focus is typically on unemployed workers in general and not on the gender dimension.
But the evidence here comes from surveys on job offers and acceptances from recent undergraduate alumni of Boston University’s business school, where one of the study’s authors teaches. Researchers asked graduates from the 2013-2019 graduating classes details about the job search process that led to their first job after graduating, such as the characteristics of their accepted and rejected offers, including salary components, job characteristics, job offer timing, and when the offer was accepted or not.
In addition, for the 2018 and 2019 cohorts, researchers also surveyed students before the start of the job search process and collected data on students’ subjective beliefs regarding the number of offers and wage offers, etc.
The study’s authors found that women, on average, accepted positions about one month earlier than their male counterparts (60% of women accepted a job before graduation, compared to 52% of males). There was a clear, large gender gap in accepted offers, and the gap narrowed in favor of women over the course of the job search. The average gender gap (i.e., male-female difference) across all accepted offers started at around 16% in August of the senior year and declined to about 10% eight months after graduation.
The researchers here believe that this gender difference can be partially accounted for by men’s greater risk tolerance and overconfidence in their salary potential. In fact, they find systematic patterns between these traits and search outcomes. For example, more risk-averse individuals reported lower reservation wages and accepted offers earlier.
The findings echo a similar observation in the field where, relative to women, men are more likely to have rejected an offer that is higher than the one that they end up accepting, are less satisfied with the job search process, and regret some aspect of their job search.
Taken together, risk tolerance and salary expectations may explain a sizable proportion of the observed gender difference in earnings. Overall, risk preferences account for about 20% of the gender gap in job search timing. Empirically, the net effect of wage and search timing results in a positive association between risk tolerance/overconfidence and the timing of job acceptance. Gender differences in risk preferences and salary overoptimism account for a non-trivial proportion (about 30%) of the gap in accepted earnings.
“Our study shows that differences in the way men and women search for jobs matter for gender pay gaps in early career,” said the paper’s lead author, Patricia Cortes.
“Gender differences in risk preferences and overconfidence about future job offers result in women having lower reservation earnings, which translates into earlier acceptance of lower-paying job offers. Gender differences in these traits may explain as much as 30% of the difference between men’s and women’s earnings in their first jobs.”