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The Central Role Of The Ask Gap in Gender Pay Inequality

DATE OF PUBLICATION Aug 2022
READING TIME 8 min

Motivation

Evidence has shown that women have lower salary expectations than comparable men, especially at the top of the income distribution, which contributes to the persistence of the residual pay gap (see. Reuben, Wiswall, and Zafar (2017), Bergerho et al. (2019), Babcock and Laschever (2007), Leibbrandt and List (2015), and Biasi and Sarsons (2022)). Yet, quantifying the role of the candidates’ desired salary in the determination of determining salary offers in traditional labor markets has proven challenging. This paper integrates the ask gap, understood as the gender differences in salary demands, as a substantial factor explaining the raw gender wage gap and, therefore, as a driver of the structural gender inequality that persists in current high-skilled labor markets.

Understanding the ask gap as an explanatory component of the raw wage gap provides advantageous insights to unpack the extent to which gender wage gaps result from differences between negotiation skills and misperceived beliefs about the labor market across genders rather than actual discriminatory firm practices.

Women’s lower salary expectations contribute to the persistence of the residual pay gap

Setting

Using data for Hired.com3, this paper exploits information about unexplored components of the salary negotiation process. In this platform, every candidate seeking for a job must provide the salary they are looking for in their next job. This ask salary is visible to firms recruiting on the platform, along with the candidate’s resume information. Second, companies signal their interest to candidates with a bid salary, indicating how much they would be willing to pay the candidate before interviewing them. Last, the platform records whether the candidate accepts or rejects the interview request. While interviews are conducted outside of the platform, Hired.com gathers information on whether the company makes a final offer of employment to the candidate and at what salary, known as the final salary  final salary4.

3 a leading online recruitment web-page for full- time, high-wage engineering jobs.
4 It is important to note that the bid salary is non-binding, so the final salary can differ from the bid.

Understanding the role of the ask gap

Measuring the gender ask and bid gaps

The ask gap portrays the extent to which women ask for lower salaries than comparable men as it captures the difference by gender on how much the employee wants to make in their next job after controlling by profile and resume characteristics. On the other hand, the gender bid gap can be understood as the extent to which women are offered lower salaries than comparable men. In order to empirically test the relationship between the ask salary and the bid gap, the paper uses a three-step methodology. First, it estimates the raw gender bid gap. Then, it estimates how much of the bid gap can be explained by the candidates’ resume characteristics. Lastly, the effect of the ask salary on the bid gap is estimated, with and without the resume characteristics controls.

Main findings

Using data on more than 110,000 candidates over several years, the paper finds a 6.8% raw ask gap between men and women. When controlling for all the resume characteristics from the candidate’s profile, the adjusted ask gap narrows to 2.9%, which shows that women with comparable resumes ask for 2.9% less than men, which accounts for $3,830 USD in average. The gap is even more prominent among candidates currently unemployed, with more experience and fewer credentials.

The raw bid gap is estimated on 3.4%, which is narrowed to 2.2% after adjusting for candidates’ resume characteristics. However, when controlled by the ask salary the bid gap disappears, indicating that gender differences in ask salaries can essentially explain 100% of the bid gap. In other words, while accounting for resume characteristics can only reduce the bid gap by 35%, gender differences in ask salaries can essentially explain 100% of the bid gap. Similarly, for a given job, resume characteristics. A linear model conditioning solely on candidates’ resume characteristics explains 82% of the variation of bid salaries, while adding the ask salary to the controls raises the variation in a 95%, leaving little room for omitted variable bias.

All in all, there is no strong evidence of discrimination against women at the extensive margin. In fact, conditional on their resume characteristics, women get slightly more bids than men, and conditional on interviewing, women are just as likely as men to get a final offer.

Closing the gap: Experimental design to anchor beliefs

Finally, to empirically estimate the market-level effects of an increase in women’s ask salaries, the paper studies an unanticipated feature change that affected a subset of candidates on the platform and induced women to ask for more. In mid-2018, a platform change affected how some candidates were prompted to report their ask salary. Specifically, before the reform, the ask salary was an empty text field. After the reform, the field was pre-filled with the median of the bid salary for a comparable candidate on the platform. This change gave candidates information on the typical offers received by similar candidates on the platform and provided them with an anchor to benchmark their own ask salary. Using an Interrupted Time Series design, the paper compares individuals who created a profile before and after the change to isolate the reform’s effect on ask salaries and bid salaries.

In the pre-reform period, the ask gap was 2.9% and essentially went to zero after the reform. This evolution in the ask gap is led by women asking for more rather than by men asking for less. In particular, the reform led women to ask for 3.2% more while men continued asking for roughly the same as they would have otherwise. On the same line, the bid gap narrows from 2.5% to -0.3% after the reform. This result is mainly driven by the fact that women are offered 2.6% more, and men are offered about the same as they would have been offered absent the reform.

At the extensive margin, results suggest that women face little penalty for demanding wages comparable to men since they did not experience a differential effect on the number of bids received after the reform.

Lessons and contributions

This paper delves into several lines of research on gender wage gaps and salary expectations, gender differences in negotiation, gender discrimination and behavioral labor economics. In particular:

  1. Integrates the relevance of the ask gap into explaining gender wage gaps. Compared to expectations measures, the ask salary plays a direct role in the salary negotiation, as it is one of the few signals voluntarily transmitted to employers. Besides, the recruitment process on the platform allows for the direct measurement of the impact of candidates’ ask gap on the firms’ offer gap, while most studies only observe either the candidate or the firm side of the market.
  2. Using information on both sides of the market, candidate’s and firm’s side, this paper provides evidence that comparable women ask for significantly less than men in high-skilled sectors, and that this gap is consequential for resulting salary offers.
  3. By exploring the propensity of companies to apply to comparable candidates rather than the probability of being hired differs across similar men and women when they apply to the same job, this research finds no evidence of discrimination against women at the extensive margin. Women in fact get slightly more interview requests than men and, conditional on interviewing, women are just as likely as men to get a final offer.
  4. By exploiting a quasi-experiment, this paper finds that providing information to women to anchor their beliefs eliminates the ask and the bid gap, without affecting the relative number of bids received by women.
  5. Lastly, it gathers evidence on the role of information on job search process and salary decisions as a mechanism to explain the gap. Systematic workers misperceptions about wages affects their negotiation skills in the labor market. Understanding the contexts and conditions under which asking for higher pay benefits women, rather than harms, is an important line for future research and to level the play field across genders.