Leaning in or Leaning Out?

The World Economic Forum estimates that for every dollar a woman earns, a man earns $1.54 in the United States. Holding all else equal, it would take the world 169 years to close the wage gap completely. This disparity has triggered an ongoing debate not only about the extent of the gap but also about what actions and policies can be implemented to shrink it. One example is the “Lean In” movement that, among other things, motivates women to negotiate salaries as frequently as men. However, a new study by Christine Exley, Muriel Niederle and Lise Vesterlund analyzes whether women realize financial gains from negotiating.

To better understand the potential benefits of negotiating, the authors conducted a laboratory experiment from May to October 2013 in which 292 undergraduate students participated in negotiation sessions. The design of the experiment consisted of randomly assigning participants into pairs of workers and firms. At the beginning of the experiment, each participant performed a minor task to obtain a contribution that later was added to their salary when negotiating. Once participants learned their contribution, they entered five rounds of negotiations. The negotiations were anonymous and workers and employers could only interact for three minutes via text message. Additionally, when participants were matched, a computer generated a suggested wage for the employee equal to the worker’s contribution plus a random bonus. In this experimental design, the main goal of the negotiation was for both parties to split the sum of their combined earnings.

With this experimental setup, the authors created two treatments. The first treatment allowed workers to negotiate or to accept the computer suggested wage—the choice treatment. In the second treatment, all participants were required to negotiate—the forced treatment. If the parties did not reach an agreement, then the final wage was the computer-suggested salary minus a five dollar penalty for both the worker and the firm.

There are three major results from the experiment: First, the results show that when men and women are required to negotiate in the forced treatment, the performance and the agreement rate are similar. In general the participants reached an agreement 92 percent of the time and the average returns for men and women did not significantly differ. Second, once the participants were allowed to choose to negotiate, the results varied among women and men. As documented previously, this experiment showed women negotiated less frequently than men. On average, women were 12 percent less likely to enter a negotiation when controlling for other factors related to the negotiation set up, such as gender, bonus level, and wage.

Finally, the authors tested whether negotiating benefits women financially. The authors find that women choose to enter negotiations when there are financial benefits involved. In contrast, when women are forced to negotiate, their returns are significantly lower. In the forced treatment, women agreed to lower wages than the suggested amount. Indeed, in the choice treatment group, only three percent of negotiations resulted in losses; whereas, in the forced treatment, 26 percent of negotiations led to losses. It is important to note that for men in the forced treatment group, the results of enforcing the negotiation have no impact on their returns.

Like most experiments, this study faces limitations when considering the external validity of the results. For instance, most people face negotiations with incomplete information. Moreover, in the experiment, factors such as discrimination based on gender, age, or race are ruled out by construction. In reality, even when controlling for every labor and social factor, women still earn significantly less than men for the same positions. Nevertheless, the main takeaway of this research is that implementing policies that only focus on improving the negotiation skills of women is not enough to improve their financial outcomes. In this regard, teaching women the value of their contributions might generate better results.

Article source: Exley, Christine, Muriel Niederle, and Lise Vesterlund. “Knowing When to Ask: The Cost of Leaning In.” NBER Working Paper Series No. 22961, 2016.

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