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.