Biased Wage Expectations and Female Labour Supply

The paper presented in this Research Seminar analyzes how biased beliefs about future wages affect individual decissions in a dynamic setting. Specifically, the authors quantify the effects of biased expectations regarding wage growth and human capital accumulation in part-time and full-time employment on female labor market outcomes. Based on customized elicitation of expectation data, the authors document that both full-time employees and part-time employees have expectzzations about wage growth in part-time employment that are severely upward biased: employees 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 the paper shows both with reduced form estimations using a control function approach and a structural life-cycle model. The authors leverage the structural life cycle model to quantify how biased beliefs drive labor supply choices and wage profiles over the life cycle and to conduct policy simulations.