If you’re currently in the job market, what’s the lowest pay you’re willing to accept for a new job? It’s a question that Federal Reserve Bank of New York researchers ask workers in their Survey of Consumer Expectations three times every year. They’re studying the so-called “reservation wage,” and the data has changed significantly over time.
The latest numbers show the overall average wage workers will accept has increased since the pandemic. From July 2021 to July 2022, the reservation wage rose from $68,954 to $72,873.
But looking at the responses from men versus women reveals a large divide. For men, the reservation wage increased to $86,259, while for women the number decreased significantly to $59,543.
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Women Expect Lower Salaries Than Men—Or Do They?
We’ve heard all of our lives about the “gender pay gap“—the most recent numbers showing that women earn 82 cents to every dollar earned by men. But when you adjust for industry, job type, hours worked, and experience, the numbers even out, and women actually make 99 cents for every dollar earned by men.
Reservation wages follow a similar pattern.
“Women educated in mathematics, IT, and physics are found to report higher reservation wages than other women and there is no difference in pay expectations between them and men,” according to research by Ewa Cukrowska-Torzewska, an Economic Sciences professor at the University of Warsaw.
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In other words, women study and enter into careers that generally pay lower salaries, which, in part, causes a reservation wage gap. But, when women opt for STEM fields, that gap disappears.
The takeaway, Cukrowska-Torzewska writes, is that we need “a higher presence of women in STEM fields as a way of achieving greater gender equality in the labor markets.”
The Pandemic Effect
The lowered reservation wage for women might also be exaggerated because non-working women are often excluded from studies.
It’s well documented that women left the workforce in droves when the pandemic began. And even though the “shecession” shows signs of recovering, women still stay home with children more than men.
And with the pandemic as a backdrop, women might actually have a higher reservation wage because they value time away from work more than ever, and are therefore less likely to take a lower wage.
Why Are Reservation Wages Important?
Ultimately, reservation wages have real-world consequences in the form of actual wages. A German study found that the gender wage gap disappears when controlling for reservation wages.