Effects of Peer Groups on the Gender-Wage Gap and Life After the MBA : Evidence from the Random Assignment of MBA Peers

Using the historical random assignment of MBA students to peer groups at an elite business school in the United States, I explore the effect of the gender composition of a student's peers on the gender-wage gap at graduation, the field of study in business school, and on long-term outcomes up to 15 years after graduation. I find that a 10-percentage point increase in the share of male students in a student's peer group leads to a 2.1 percent increase in the salaries of female students at graduation, closing the gender gap in salaries at graduation by approximately two-thirds. In addition, women who are randomly-assigned to a greater share of male peers are more likely to enter male-dominated industries and occupations in their first job after graduation. The effects of peers on the wages of female MBAs accumulate over time. Women with a greater share of male peers receive job offers at graduation in occupations, industries, and firms that are associated with steeper earnings profiles and greater wage growth. Much of the difference in (offers for) long-term earnings profiles is explained by the effect of peers on human capital choices: women with more male peers are more likely to take quantitative courses in business school and to concentrate in finance, one of the highest paid areas of concentration. Almost all of the difference in starting salary, however, comes from a change in female students' willingness-to-accept the highest salary offered within their offer set. This paper provides evidence that in addition to changes in human capital investments, peers also contribute to the formation of preferences: women with more male peers are less willing to pay for the non-wage amenities of a job. Interestingly, the gender composition of peer groups has large and persistent effects on women, long after graduation, with effects nearly 25 times the effect observed at the time of graduation. These results reveal some underlying mechanisms through which the gender-wage gap can accumulate to the documented magnitudes over the course of the lifecycle, but also how the school peer environment can influence the start of the career and mitigate some of these effects in growing proportion over time as well