Labor Market Signaling and Self-Confidence: Wage Compression and the Gender Pay Gap N.B.: This paper replaces Nr 10.07 "Labor Market Signaling with Overconfident Workers" (June 2010)

Luis Santos-Pinto ()

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: I extend Spence's (1973) signaling model by assuming some workers are overconfident - they underestimate their marginal cost of acquiring education - and some are underconfident. Firms cannot observe workers' productive abilities and beliefs but know the fractions of high-ability, overconfident, and underconfident workers. I find that biased beliefs lower the wage spread and compress the wages of unbiased workers. I show that gender differences in self-confidence can contribute to the gender pay gap. If education raises productivity, men are overconfident, and women underconfident, then women will, on average, earn less than men. Finally, I show that biased beliefs can improve welfare.

Keywords: signaling; education; self-confidence; wage compression; gender pay gap (search for similar items in EconPapers)
JEL-codes: D03 D82 J24 J31 (search for similar items in EconPapers)
Pages: 44 pp.
Date: 2011-12
New Economics Papers: this item is included in nep-cta, nep-hrm, nep-lab and nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:11.07

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