Working Paper
Misinformed, mismatched, or misled?

Explaining the gap between expected and realized graduate earnings in Mozambique

Inaccurate expectations of future wages are found in many contexts. Yet, existing studies overwhelmingly refer to high-income countries, and there is little evidence regarding the sources of expectational errors.

Based on a longitudinal survey of graduates from the six largest universities in Mozambique, we find the gap between expected and realized first earnings are extremely large.

Applying a novel decomposition procedure, we find these errors are not driven by incorrect information about labour market returns.

Job mismatches of various kinds account for over one-third of the total expectational error, while the remaining error reflects bias from misleading reference points (superstar salaries).

While this suggests a need for greater transparency regarding levels of remuneration, we find no evidence that optimistic expectations are associated with poorer labour market outcomes.