The role of overconfidence in the gender pay gap

Recent evidence on the gender pay gap has shown that while it is narrowing for the least educated, it has remained stagnant for those with a university degree and is largest for those at the top of the earnings distribution. Attempts to explain the gap using non-cognitive traits have been limited despite a literature highlighting the fact that some of the gap may be attributable to women not “leaning in” while men are more overconfident in their abilities. We probe this hypothesis using longitudinal data from childhood into mid-career and construct a measure of overconfidence using multiple measures of objective cognitive ability and subjective estimated ability. Our measure confirms previous findings that men are more overconfident than women. We then use linear regression and decomposition techniques to account for the gender pay gap including our measure of overconfidence. Our results show that overconfidence captured in adolescence explains a significant portion of the gender wage gap at age 25, which decreases in importance by age 34 and age 42. This highlights the importance of overconfidence in helping individuals to get on a trajectory of higher earnings early in career.

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