Updating great expectations: The effect of peer salary information on own-earnings forecasts

Abstract

How jobseekers set their earnings expectations is central to job search models. To study this process, we track the evolution of own-earnings forecasts over 18 months for a representative panel of university-leavers in Mozambique and estimate the impact of a wage information intervention. We sent participants differentiated messages about the average earnings of their peers, obtained from prior survey rounds. Demonstrating the stickiness of (initially optimistic) beliefs, we find an elasticity of own-wage expectations to this news of around 7 per cent in the short term and 16 per cent over the long term, which compares to a 22 per cent elasticity in response to unanticipated actual wage offers. We further find evidence of heterogeneous updating heuristics, where factors such as the initial level of optimism, cognitive skills, perceived reliability of the information, and valence of the news shape how wage expectations are updated. We recommend institutionalizing public information about earnings.

Informed participation: the effects of information treatment on panel non-response

“…That should not mean, however, that the type of information provided is irrelevant. Jones and Santos (2000) offer evidence that more granular labour market information, espe-cially that related to job-seekers' study areas, is more relevant to them and more likely to be integrated into their own labour market expectations.…”

“…While conducting the follow-up phone survey, an information experiment was conducted. Its main aim was to investigate the effects of labour market information on job-seekers' beliefs and on labour market outcomes, most notably on unemployment duration for university graduates, as discussed by Jones and Santos (2000). With that purpose, we provided peer information on wages and employment likelihood as a treatment.…”