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Expecting Better? How Young People Form Their Earnings Expectations

Author

Listed:
  • Favara, Marta

    (University of Oxford)

  • Glewwe, Paul

    (University of Minnesota)

  • Porter, Catherine

    (Lancaster University)

  • Sanchez, Alan

    (Group for the Analysis of Development (GRADE))

Abstract

Education choices are made based on the expected returns to schooling. If individuals are badly informed, they may make inefficient choices. We directly elicit young people's subjective expectations at the age of 14-15 about earnings under different educational scenarios and find these predict university enrolment by the age of 18-19. Females expect lower earnings than males, likely anticipating the reality of the labour market. Living in a poorer household, weaker numeric skills and lower self-efficacy are also associated with lower expected returns to education. Comparing expectations with the actual earnings from a nationally representative sample of individuals matched by sex, region and place of residence, we find that expectations for earnings upon completing secondary education closely match observed earnings, while there is a tendency to overestimate the returns to completing a university degree. These results hold for both males and females although with considerable variation across regions and population subgroups.

Suggested Citation

  • Favara, Marta & Glewwe, Paul & Porter, Catherine & Sanchez, Alan, 2021. "Expecting Better? How Young People Form Their Earnings Expectations," IZA Discussion Papers 14289, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp14289
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    References listed on IDEAS

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    1. Marcelo Gantier & Rafael Novella & Andrea Repetto, 2024. "Subjective expectations and schooling choices in Latin America and the Caribbean," Journal of International Development, John Wiley & Sons, Ltd., vol. 36(3), pages 1593-1621, April.

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    More about this item

    Keywords

    subjective expectations; earning realizations; Young Lives; Peru;
    All these keywords.

    JEL classification:

    • I2 - Health, Education, and Welfare - - Education
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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