Influence of Gender Differences in the Taste for Risk and Competition on Gender Gap in Labour Market Outcomes

Discuss the evidence on whether gender differences in the taste for risk and competition can explain part of the observed gender gap in labor market outcomes.

Gender differences are presented by the choices of men and women regarding the observed gender gap in labor market outcomes (Bertrand, 2011). Principally discrete are the gender differences in compensation and representation in the highest-paid jobs. For instance, women denoted only 6,5% of the highest-paid CEOs in 2014 and were paid 9,9% less than men counterparts (Equilar, 2015). As gender differences have been explained substantially, sizeable differences remain unaccounted for (Reuben, Sapienza, and Zingales, 2015). An explanation for the remaining differences is the well-documented gender difference in taste for risk and competition where men are very eager to compete while women avoid competing, and shy away from competition (Niederle and Vesterlund, 2011). Niederle and Vesterlund (2007) introduced the evaluation of laboratory measurements of taste for the competition which helps explain upcoming gender differences in outcomes and labor market choices in a sample of high-ability business professionals.

The traditional economic approach to understanding gender differences in labor market outcomes focuses on demand-side interpretations, such as employer discrimination, and supply-side restrictions that are constructed on educational differences or family responsibility (Azmat and Petrongolo, 2014). Lately, economists examined the alternative supply-side descriptions for gender differences in outcomes. For instance, possible gender differences in psychological attributes, involving preferences for risk and competition, also concerns about people could offer insights into gender gaps (Croson and Gneezy, 2009). This paper outlines the gender differences in the taste for risk and competition and explains the gender gap in labor market outcomes. Subsequently, it provides an overview of the literature, psychological factors, and survey-based evidence. It analyses the taste for competition and earnings and then concludes.

This section outlines experimental findings on gender differences that may induce job earnings. Importantly, gender differences in preferences for risk and competition analyze job sorting which is the first object of a labor relation. In general, differences in social preferences, propose interesting information on the job operation of men and women. Job-related and industry separation of men and women is one of the main mechanisms of gender gaps in earnings (Altonji and Black, 1999). Since jobs in different segments propose different arrays of job security, gender differences in preferences concerning risk and competition have the ability to form gaps in outcomes via job sorting behavior (Azmat and Petrongolo, 2014). Work-related risks are normally rewarded by higher outcomes, and high-risk sectors propose to be dominated by men. If women are more risk-averse than men, they rebound to be overrepresented in works with lower earnings. There have been studied risk experiments in order to have a better understanding of gender differences in risk preferences. According to Croson and Gneezy (2009), men are more risk-prone than women. Although Loewenstein et al. (2001), ascribe these differences to the emotional response to uncertain conditions, others display that they are correlated to confidence (Dohmen and Falk, 2011). A case that refers to the explanation of why the outcomes of men and women differ, even on identical jobs, is that men and women bargain their wages in different ways. In psychological terms, it is proposed that women receive less salary than their men colleagues as they avoid competitiveness, and according to Babcock and Leschever (2003), they basically ‘don’t ask’ for a pay increase. On the other hand, Small et al. (2007) define an explicit gender gap in the possibility of introducing a negotiation, with women requesting a higher payment from the experimenter less frequently than men. A significant result is that women are less possible to negotiate in the existence of male assessors (Azmat and Petrongolo, 2014).

This paper contributes to the growing literature on gender differences in risk aversion, preferences, and competition, and these could have in theory a large impact on the supply side of the labor market. Specifically, it will examine if the differences between men and women can explain gender differences in labor market outcomes. A recent survey researches using either survey or experimental data if women and men differ in psychological characteristics that can explain the circumstance that women are under-represented in high-paying jobs and high-level professions. If it does, then if these differences are controlled for, possibly the gender pay gap will disappear (Booth, 2009).

Looking the survey-based indication is illustrated the use of concurrent survey-based measures of risk-aversion and competitive behavioral characteristics is determined by probable endogeneity. Nevertheless, personality variables are combined into the investigation of Goldsmith et al. (1997), and Mueller and Plug (2006). Goldsmith et al. (1997), used NLSY data and displayed that personality variables and human capital are associated with wages, however, they do not examine the gender dimension. Instead, Mueller and Plug (2006), investigated the gender dimension using a Wisconsin-based survey. Although their psychological variables are concurrent with measures of earnings, they, on the other hand, discover interesting associations between measures of personality and earnings. Manning and Swaffield (2008) used determined psychological evidence avoiding endogeneity issues, principally measured at age 16 from the British Cohort Study to appreciate gender wage gaps at 30. They illustrated that there is no gender wage gap in labor market entry, for equal fully work-commitment women and men (for those who are not willing to have children and with constant full-time work experience). Notwithstanding, this changes over the age of 30 and creates an unexplained gap since, women who have no children and they are not willing to have, full-time employment earn 8 log points less than the corresponding men after ten years in the labor market. They considered the role of psychological variables in clarifying this, focusing on risk attitudes, competitiveness, and career orientation. The psychological variables identify the upper bound of 4,5 log points of the gender wage gap. These survey-based measures of psychological factors outline the differences in psychological factors that could explain gender pay gaps (Booth, 2009).

In order to measure taste for competition, the study of Buser, Niederle, and Oosterbeek (2014) is used. They discovered that monitoring for a taste for competition restricts the gender gap in track choice by about twenty percent. Therefore, by liberalizing their discoveries it proved that taste for competition forecasts actual labor market outcomes in a different sample of applicants. Moreover, Reuben, Wiswall, and Zafar (2015) examine the connection between the taste for competition and outcomes. They discovered that taste for competition and confidence measures are connected with the outcomes students expect to receive ten years after they will graduate. In addition, they also found that taste for competition explains about eighteen percent of the gender gap in the estimated outcomes. A couple of years after graduation, students are asked about their current earnings. Based on this, a positive connection is found between earnings, taste for competition, and the gender gap which disappears for women that are competitive and confident (Reupen, Sapienza, and Zingales, 2015).

Reuben, Sapienza, and Zingales (2015) investigated the gender differences in the taste for risk and competition explaining the observed gender gap in labor market outcomes referred to a study from MBA graduates from the University of Chicago Booth School of Business in 2008. As part of the study, all the MBA students completed a study and took part in an experiment projected to measure individual-specific characteristics. The students completed the study online and then they participated in the experiment. The survey contained questionnaires on personality traits and questions on demographic characteristics. However, this term paper will focus on the experiment mainly. The experiment consists of five parts that are proposed to measure people’s characteristics, especially risk preferences, time preferences, willingness to trust and reciprocate, willingness to cooperate, and taste for competition. Firstly, it will be outlined a short description of the first four parts and then an elaborate description of the firth part which measures taste for competition.

To measure risk preferences, participants were given fifteen choices in a lottery with an expected price of one hundred dollars and a certain amount between fifty dollars to one hundred and twenty. Thereafter, we use these choices to define each candidate’s risk aversion coefficient supposing a CRRA utility function (Holt and Laury, 2002). Likewise, to measure time preferences, they caused separable discount rates by providing each candidate thirteen choices amid taking their earnings right away and getting an amount ranging from zero percent to twelve percent two weeks after. Using these choices they were able to calculate each participant’s two-week discount rate (Reuben, Sapienza, and Zingales, 2015). However, measuring trust and reciprocity consists of the participants playing variations of the noted trust game (Berg, Dickhaut, and McCabe, 1995). Some participants played the game twice, meaning that they took the game once as trustors and once as trustees. Using the portion of fifty dollars that candidates consign as trustors as a measure of their readiness to trust and the portion of the price received that they return as trustees as a measure of their readiness to reciprocate. Lastly, the participants were separated into groups of eight and they were playing a linear public game in order to measure their willingness to cooperate (Isaac, Walker, and Thomas, 1984).

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In order to measure taste for competition, the study by Niederle and Vesterlund (2007) is used. Firstly, participants completed an additional task which included a tournament payment scheme and a piece-rate payment scheme. Consequently, they completed the task once again but this time under a payment scheme of their choice. This choice of payment scheme stands for their taste for competition.

Recent experiments proved that given the choice of whether to participate or not participate in tournaments, women shy away from competition in comparison with men who choose to compete. Gneezy, Leonard, and List (2008) examined the importance culture plays in defining gender differences in competitive behavior. They examined two dissimilar cultures, the Maasai tribe of Tanzania and the Khasi tribe in India. The former is patriarchal but the latter is matrilineal. They investigated that, in the patriarchal culture, women shy away from competition in comparison with men, meaning that they are less competitive than men, the result is found from studies using data from Western cultures. On the other hand, in the matrilineal culture, women are more competitive than men.

Another experiment done by Gneezy, Leonard, and List (2008) has to do with college-age men and women studying at co-educational universities. As it is proven, girls and boys react in a different ways to co-education, resulting in boys doing better than girls in single-sex surroundings (Brustaert, 1999). Additionally, psychologists claim that the gender feature of an individual’s behavior is set in operation by the gender of others with whom they cooperate. Therefore, to examine the role that single-sex and co-educational education play in determining competitive behavior and risk-taking (Booth, 2009).

Moreover, a main inference is that education can alter preferences in an important economic approach, specifically, that girls from single-sex schools will have not the same preferences for risk and competition as those from co-educational schools. It is examined by Brutsaert (1999) that girls have difficulties in preserving their gender identity in schools where boys are present than boys when girls are present. In co-educational schools, girls are more attracted to people of the opposite sex than they are in single-sex schools. This may lead them to abide by boys’ potential of the proper behavior of girls to avoid social rejection. Thus, competitive behavior and risk avoidance are observed as being a part of female gender identity while risk-seeking is a part of male gender identity, so studying in a co-educational school may lead girls to make less competitive and risky choices than boys (Booth, 2009).

According to Booth (2009), in September 2007, an experiment took place on the Colchester campus of the University of Essex. The experiment involved students from eight schools in the regions of Essex and Suffolk in the UK. In Suffolk, there are no single-sex schools, whereas in Essex the old single-sex grammar schools remain. 260 students attended the experiment from years 10 and 11 who were attending either single-sex or co-educational schools. Students from each school were randomly separated into groups which were of three types: all-girls, all-boys, and mixed. At the beginning of the experiment, students were told that they will complete some tasks, and one of these would be randomly chosen for payment at the end. More tasks contained students solving as many of the fifteen mazes as possible in five minutes. In advance of each round, students were informed of the nature of the task to perform and the payment for that round. Although there are five rounds, there will be discussed just two of the rounds as they are more important, rounds three and five. Competitive behavior was measured by how students’ choices between choosing for payment through the experiment or by piece rate in round three. However, in round five we look for risk on whether or not a student selected a real-stakes gamble for the payment instrument (Booth, 2009).

Round three contained the choice of a Piece Rate or a Tournament, where students were free to select either option 1 or 2. The payment depended on the option chosen, option 1 carried £0,50 for every correct maze solved, while option 2 carried £2 for every correct maze solved only if the student solved more mazes than anyone in their group. The experiment showed that girl's surroundings play a significant role in explaining why she indicates not to compete. Looking at the choices made by girls from both single-sex and co-educational schools it is clear to see that that there are enormous differences in their behavior. Specifically, girls from single-sex schools were more probable to enter a competition than co-educational girls. It was notable that girls being in the all-girls group for only 20 minutes were influenced and there were more likely to enter the tournament. Moreover, comparing the behavior of girls with that of boys from single-sex and co-educational schools, it was clear that girls from single-sex schools acted like boys (Booth, 2009). These results were reliable with the gender identity theory and with the educational literature which proposes that there is more pressure for girls to preserve their gender identity in schools where boys are present than for boys when girls are present (Maccoby, 1998).

On the other hand, in round five, we found that girls are less likely than boys to choose a real-stakes gamble. Students were asked to choose between options 1 and 2, option 1 consisted to get £5 definitely and option 2 was of flipping a coin and receiving £11 if the coin came up heads or £2 if the coin came up tails. This round illustrates the pure risk aversion differences between girls and boys (Booth and Nolen, 2009b).

In summary, from the experimental analysis, it is established that the average female avoids competitive or risky behavior more than the average male. Also, girls from single-sex schools are as likely as boys to choose the real stakes gamble and to choose competitive behavior as boys. This indicates that gender differences in competitive behavior that have been studied in previous experiments might reflect social learning rather than inherent gender traits alone. Also, the experiment showed that women in gender-segregated groups will be more completive and less risk-averse than in mixed-sex groups (Booth, 2009).

In conclusion, this paper studies whether people who enjoy competition, as measured by the experiment, earn different labor market outcomes than their less competitive-seeking colleagues. It also examines the MBA graduates from a prestigious business schools, competitive people earn higher outcomes after graduation. Notably, differences in taste for competition account for a significant segment of the gender gap in earnings. Moreover, the experiments bargain gender differences in competitive behavior and risk-taking. These are clarifying the gender pay gaps. It is clear to see that the experiments can help for a better understanding of gender differences in outcomes. However, with the combination of the insights of each methodology, we can conclude that a small part of the gender pay gaps and glass ceiling may be owed to psychological differences between men and women.

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