Gender Pay Disparities Begin With Job Search: Study

Based on new research published by Oxford University Press in the Quarterly Journal of Economics, a key component of the wage disparity between men and women is due to how they conduct job searches, with women are more likely to accept job offers early while men tend to hang out for greater income.

As of 2020, women in the United States earn 84 per cent of what males earn. This inequality is well documented, and economists and the general public have been aware of it for decades. The explanations for this phenomenon are still being debated. The initial labour market circumstances are long-lasting. Young people who start their careers during a recession will have lower pay for at least ten years compared to cohorts who start during a more substantial economic period. Because workers typically change jobs several times throughout their careers, personal characteristics that matter in early-career job searches (for example, risk aversion and biased beliefs about their earning potential) are likely to matter in 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 behaviour 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 behaviour 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. They 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 per cent of women accepted a job before graduation, compared to 52 per cent of males). There was a clear, large gender gap in accepted offers, and the gap narrowed in favour 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 per cent in August of the senior year and declined to about 10 per cent 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.

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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 per cent 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