The Gender Wage Gap: Does a Gender Gap in Reservation Wages Play a Part?

This paper focuses on re-examining the gender wage gap and the potential role that reservation wages play. Based on two waves of rich data from the IZA Evaluation Dataset Survey we examine the importance of gender differences in reservation wages to explain the gender gap in realized wages for a sample of newly unemployed individuals actively searching for a full-time job in Germany. The dataset includes measures for education, socio-demographics, labor market history, psychological factors and job search characteristics allowing us to perform a decomposition analysis including these potentially influential factors. Our results suggest that the gender wage gap disappears once we control for reservation wages. We also find a close correspondence between the two gaps for certain subgroups. For example, those with low labor market experience show no gender gap in reservation wages and also no corresponding gap in observed wages. In an attempt to better understand how the initial gender gap in reservation wages arises, we also decompose the gender gap in reservation wages and draw some preliminary conclusions on the nature of the unobservable traits that reservation wages might be capturing.