Expecting Better? How Young People Form Their Earnings Expectations

38 Pages Posted: 24 Apr 2021

See all articles by Marta Favara

Marta Favara

University of Oxford - Department of International Development

Paul Glewwe

University of Minnesota - College of Agricultural, Food and Environmental Sciences - Department of Applied Economics

Catherine Porter

Lancaster University - Department of Economics

Alan Sánchez

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.

JEL Classification: I2, J22, J24

Suggested Citation

Favara, Marta and Glewwe, Paul and Porter, Catherine and Sánchez, Alan, Expecting Better? How Young People Form Their Earnings Expectations. IZA Discussion Paper No. 14289, Available at SSRN: https://ssrn.com/abstract=3833220 or http://dx.doi.org/10.2139/ssrn.3833220

Marta Favara (Contact Author)

University of Oxford - Department of International Development ( email )

United Kingdom

Paul Glewwe

University of Minnesota - College of Agricultural, Food and Environmental Sciences - Department of Applied Economics ( email )

1994 Buford Avenue
Room 231
St. Paul, MN 55108-1995
United States

Catherine Porter

Lancaster University - Department of Economics ( email )

Lancaster LA1 4YX, LA1 4YX
United Kingdom

Alan Sánchez

Group for the Analysis of Development (GRADE) ( email )

Av. Almirante Grau #915
Lima 4
Peru

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