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The Accuracy of Job Seekers' Wage Expectations

Author

Listed:
  • Caliendo, Marco

    (University of Potsdam)

  • Mahlstedt, Robert

    (University of Copenhagen)

  • Schmeißer, Aiko

    (University of Potsdam)

  • Wagner, Sophie

    (University of Potsdam)

Abstract

We study the accuracy of job seekers' wage expectations by comparing subjective beliefs to objective benchmarks using linked administrative and survey data. Our findings show that especially job seekers with low objective earnings potential and those predicted to face a penalty compared to their pre-unemployment wage display overly optimistic wage expectations. Moreover, wage optimism is amplified by increased job search incentives and job seekers with overoptimistic wage expectations tend to overestimate their reemployment chances. We discuss the labor market implications of wage optimism, as well as the role of information frictions and motivated beliefs as sources of overoptimism.

Suggested Citation

  • Caliendo, Marco & Mahlstedt, Robert & Schmeißer, Aiko & Wagner, Sophie, 2024. "The Accuracy of Job Seekers' Wage Expectations," IZA Discussion Papers 17198, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17198
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    References listed on IDEAS

    as
    1. Marinescu, Ioana, 2017. "The general equilibrium impacts of unemployment insurance: Evidence from a large online job board," Journal of Public Economics, Elsevier, vol. 150(C), pages 14-29.
    2. Jason Sockin & Aaron Sojourner, 2023. "What’s the Inside Scoop? Challenges in the Supply and Demand for Information on Employers," Journal of Labor Economics, University of Chicago Press, vol. 41(4), pages 1041-1079.
    3. Michèle Belot & Philipp Kircher & Paul Muller, 2019. "Providing Advice to Jobseekers at Low Cost: An Experimental Study on Online Advice," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(4), pages 1411-1447.
    4. Francisco M. Gonzalez & Shouyong Shi, 2010. "An Equilibrium Theory of Learning, Search, and Wages," Econometrica, Econometric Society, vol. 78(2), pages 509-537, March.
    5. Juan Dubra, 2004. "Optimism and Overconfidence in Search," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 198-218, January.
    6. Girum Abebe & Stefano Caria & Marcel Fafchamps & Paolo Falco & Simon Franklin & Simon Quinn & Forhad Shilpi, 2023. "Matching Frictions and Distorted Beliefs:Evidence from a Job Fair Experiment," Working Papers 958, Queen Mary University of London, School of Economics and Finance.
    7. Fertig, Michael & Schmidt, Christoph M. & Schneider, Hilmar, 2006. "Active labor market policy in Germany--Is there a successful policy strategy?," Regional Science and Urban Economics, Elsevier, vol. 36(3), pages 399-430, May.
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    Cited by:

    1. Altmann, Steffen & Mahlstedt, Robert & Rattenborg, Malte Jacob & Sebald, Alexander, 2023. "Which Occupations Do Unemployed Workers Target? Insights from Online Job Search Profiles," IZA Discussion Papers 16696, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    subjective expectations; objective benchmarks; job search; unemployment; reemployment wages;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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