Analyzing the gender pay gap

Empirical research on gender pay gaps has traditionally focused on the role of gender-specific factors, particularly gender differences in qualifications and differences in the treatment of otherwise equally qualified male and female workers (i.e., labor market discrimination). This paper explores the determinants of the gender pay gap and argues for the importance of an additional factor, wage structure, the array of prices set for labor market skills and the rewards received for employment in favored sectors. Drawing on our previous work we illustrate the impact of wage structure by presenting empirical results analyzing its effect on international differences in the gender gap and trends over time in the gender differential in the U.S.     

Public–private wage gap in Latin America (1992–2007): A matching approach

Using matching methods, we estimate the public–private wage gap for urban workers in eleven Latin American countries for the 1992–2007 period. These methods do not require any estimation of earnings equations and hence no validity-out-of-the-support assumptions; furthermore, this approach allows us to estimate not only the average wage gap but also its distribution. Our main findings indicate that the average public sector worker earns more than his/her private counterpart, and that this differential increased over the 1992–2007 period. Important differences along the wage distribution are also shown in the results; in fact, public servants in the highest percentiles of the wage distribution generally earn less than their private sector equivalents. Nonetheless, the percentile at which a positive wage gap becomes a wage penalty shifted over the period as the average wage gap experienced by most countries widened. Still, the most qualified public sector workers do face a wage penalty. Furthermore, indicators of government effectiveness show no relationship with the country ranking according to the public–private wage gap.     

A gender wage gap decomposition for matched employer–employee data

In this paper we evaluate the extent to which the gender wage gap in the Finnish manufacturing sector is attributable to within-job wage differentials, sex differences in individual qualifications, and disproportionate concentration of women in lower-paying firms and lower-paying jobs within firms. We use matched employer–employee data to compare wage differentials between similarly qualified female and male workers who are doing similar work for the same employer. Our modelling approach employs a correlated random effects specification to account for the hierarchical grouped structure of the underlying data.     

Noncognitive skills, occupational attainment, and relative wages

This paper examines whether men's and women's noncognitive skills influence their occupational attainment and, if so, whether this contributes to the disparity in their relative wages. We find that noncognitive skills have a substantial effect on the probability of employment in many, though not all, occupations in ways that differ by gender. Consequently, men and women with similar noncognitive skills enter occupations at very different rates. Women, however, have lower wages on average not because they work in different occupations than men do, but rather because they earn less than their male colleagues employed in the same occupation. On balance, women's noncognitive skills give them a slight wage advantage. Finally, we find that accounting for the endogeneity of occupational attainment more than halves the proportion of the overall gender wage gap that is unexplained.     

Foreign ownership,human capital,and the structure of wages in Japan

We examine the differences in the structure of wages between domestic and foreign-owned establishments in Japan. We use high-quality datasets from the Japanese government and construct a large employer–employee matched database consisting of 1 million workers in 1998. Our results confirm that foreign-owned establishments in Japan pay higher wages. We estimate that one percentage increase in foreign-ownership share of equity raises wages by 0.3%. We surmise that this foreign-ownership wage premium can be explained, at least in part, by compensating wage differentials. Workers in foreign-owned establishments are not protected by lifetime employment. They receive higher compensation for being exposed to higher risk and forfeiting their employment security. We also find that in foreign-owned establishments, wages are determined more by general skills, and less by firm-specific skills. These effects become more pronounced among establishments with a higher share of foreign ownership. The gender wage gap is considerably smaller among foreign establishments. Given the lack of long-term prospects for women in the Japanese labor market, foreign-owned establishments may be one source of ‘brain drain’ for highly skilled women there.     

Monopsonistic discrimination, worker turnover, and the gender wage gap

Motivated by models of worker flows, we argue in this paper that monopsonistic discrimination may be a substantial factor behind the overall gender wage gap. Using matched employer–employee data from Norway, we estimate establishment-specific wage premiums separately for men and women, conditioning on fixed individual effects. Regressions of worker turnover on the wage premium identify less wage elastic labour supply facing each establishment of women than that of men. Workforce gender composition is strongly related to employers' wage policies. The results suggest that 70–90% of the gender wage gap for low-educated workers may be attributed to differences in labour market frictions between men and women, while the similar figures for high-educated workers ranges from 20 to 70%.     

Wage-setting institutions as industrial policy

Centralized wage-setting arrangements compress wage differentials along many dimensions, but how do they affect employment structure? To address this issue, we relate the evolution of US–Swedish differences in the industry distribution of employment to relative wages between and within industries. We find that centralized wage setting shifted Swedish employment away from industries with high wage dispersion among workers, a high mean wage and, especially, a low mean wage. The dissolution of Sweden's centralized wage-setting beginning in 1983 led to widening wage differentials and a reversal in the evolution of US–Swedish differences in industry structure.     

Job mobility and the gender wage gap in Italy

This paper investigates the contribution of gender differences in job mobility to the emergence of a gender wage gap in the Italian labour market. We show that over the first 10 years of labour market experience job mobility accounts for up to 30% of total log wage growth for men and only 8.3% for women, and that this difference is mainly due to differences in returns to mobility. The gender mobility gap is robust to the inclusion of individual, job and firm characteristics, to different ways of accounting for individual unobserved heterogeneity, and is mainly found for voluntary job moves. Looking at the characteristics of the jobs and the firms' workers move to, we find that moves to larger firms represent by far the main source of gender differences in returns to mobility. We offer two possible explanations for this finding; one which involves differences in bargaining behaviour and one which relates to the theory of compensating differentials.     

Rising wage inequality,the decline of collective bargaining,and the gender wage gap

This paper investigates the increase in wage inequality, the decline in collective bargaining, and the evolution of the gender wage gap in West Germany between 2001 and 2006. Based on detailed linked employer–employee data, we show that wage inequality is rising strongly — driven not only by real wage increases at the top of the wage distribution, but also by real wage losses below the median. Coverage by collective wage bargaining plummets by 16.5 (19.1) percentage points for male (female) employees. Despite these changes, the gender wage gap remains almost constant, with some small gains for women at the bottom and at the top of the wage distribution. A sequential decomposition analysis using quantile regression shows that all workplace related effects (firm effects and bargaining effects) and coefficients for personal characteristics contribute strongly to the rise in wage inequality. Among these, the firm coefficients effect dominates, which is almost exclusively driven by wage differences within and between different industries. Labor demand or firm wage policy related effects contribute to an increase in the gender wage gap. Personal characteristics tend to reduce wage inequality for both males and females, as well as the gender wage gap.     

The Gender Wage Gap in Europe: Job Preferences,Gender Convergence and Distributional Effects

The gender wage gap has declined over time. However, most of the remaining gap is unexplained, partly because of gender convergence in wage‐determining characteristics. In this paper, we show the degree of convergence differs substantially across Europe. In some countries, predominantly in Eastern Europe, the gender wage gap is entirely unexplained. However, in other countries, differences between the characteristics of men and women explain a relatively large proportion of the wage gap. Gender differences in job preferences contribute 10% to the wage gap, which is more than job tenure, previous employment status or field of study. The role of job preferences is particularly strong at the top of the wage distribution.     

Counterfactual distributions with sample selection adjustments: Econometric theory and an application to the Netherlands

Several recent papers use the quantile regression decomposition method of Machado and Mata [Machado, J.A.F. and Mata, J. (2005). Counterfactual decomposition of changes in wage distributions using quantile regression, Journal of Applied Econometrics, 20, 445–65.] to analyze the gender gap across log wage distributions. In this paper, we prove that this procedure yields consistent and asymptotically normal estimates of the quantiles of the counterfactual distribution that it is designed to simulate. Since employment rates often differ substantially by gender, sample selection is potentially a serious issue for such studies. To address this issue, we extend the Machado–Mata technique to account for selection. We illustrate our approach to adjusting for sample selection by analyzing the gender log wage gap for full-time workers in the Netherlands.     

Immigrant wage profiles within and between establishments

Life cycle wages of immigrants from developing countries fall short of catching up with wages of natives. Using linked employer–employee data, we show that 40% of the native–immigrant wage gap is explained by differential sorting across establishments. We find that returns to experience and seniority are similar for immigrant and native workers, but that differences in job mobility and intermittent spells of unemployment are major sources of disparity in lifetime wage growth. The inferior wage growth of immigrants primarily results from failure to advance to higher paying establishments over time. These empirical patterns are consistent with signaling disadvantages of immigrant job seekers, but not with the explanation that low wage growth follows from inferior information about employers and job opportunities.     

Three observations on wages and measured cognitive ability

This paper summarizes our recent research on the relationship between wages and measured cognitive ability. In it, we make three main points. First, we find that wage payment by ability does vary across race and gender in the US, and that the fraction of wage variance explained by cognitive ability is modest. Second, measured cognitive ability and schooling are so highly correlated that one cannot separate their effects without imposing strong, arbitrary parametric structure in estimation which, when tested, is rejected by the data. Third, controlling for cognitive ability, personality traits (socialization skills) are correlated with earnings, although they primarily operate through schooling attainment.     

Stochastic monotonicity in intergenerational mobility tables

The aim of this paper is to test for stochastic monotonicity in intergenerational socio‐economic mobility tables. In other words, we question whether having a parent from a high socio‐economic status is never worse than having one with a lower status. Using existing inferential procedures for testing unconditional stochastic monotonicity, we first test a set of 149 intergenerational mobility tables in 35 different countries and find that monotonicity cannot be rejected in hardly any table. In addition, we propose new testing procedures for testing conditional stochastic monotonicity and investigate whether monotonicity still holds after conditioning on a number of covariates such as education, cognitive and non‐cognitive skills. Based on the NCDS cohort data from the UK, our results provide evidence that monotonicity holds, even conditionally. Moreover, we do not find large differences in our results when comparing social class and wage class mobility. Copyright © 2010 John Wiley & Sons, Ltd.     

Gender wage gap: A semi-parametric approach with sample selection correction

Sizeable gender differences in employment rates are observed in many countries. Sample selection into the workforce might therefore be a relevant issue when estimating gender wage gaps. We propose a semi-parametric estimator of densities in the presence of covariates which incorporates sample selection. We describe a simulation algorithm to implement counterfactual comparisons of densities. The proposed methodology is used to investigate the gender wage gap in Italy. We find that, when sample selection is taken into account, the gender wage gap widens, especially at the bottom of the wage distribution.     

Unionization and the Pattern of Nonunion Wages: Evidence for the UK

This paper presents the first examination of the effect of unionisation on the distribution of nonunion wages in the UK. We test a hypothesis that has received considerable attention in the US: that the threat of unionisation leads nonunion firms to increase the earnings of their lowest paid workers, so compressing their internal wage distribution. In aggregate we find little support for this hypothesis in the UK and suggest that the supportive evidence from the US may be a function of the absence of suitable linked employer-employee data.     

The causal effect of the number of children on gender‐specific labour supply elasticities to the firm

We estimate the effect of the number of children on the female and the male wage elasticities of labour supply to the firm using instrumental variables estimation in data from the US Current Population Survey (2000–19). Parents' number of children is instrumented with the sex mix of their first two children. We find that the male wage elasticity of labour supply to the firm significantly increases with the number of children, while the female elasticity is not significantly altered. That is, we find evidence that male labour markets become more competitive with the arrival of children. Our results also show that firms have substantial monopsonistic power and, in line with the monopsony theory of the gender pay gap, that male labour markets are more competitive than female markets.     

The effects of multiple minimum wages throughout the labor market: The case of Costa Rica

This paper investigates the effects of legal minimum wages on employment and hours worked among workers covered by minimum wage legislation as well as those for whom it does not apply (the uncovered sector) in Costa Rica. This country's large uncovered sector and complex minimum wage policy, which has for decades set numerous wages throughout the wage distribution, provide a stimulating counterpoint to the U.S. framework for the analysis of the impact of minimum wages. Using 1988–2000 micro data, we find that a 10% increase in minimum wages lowers employment in the covered sector by 1.09% and decreases the average number of hours worked of those who remain in the covered sector by about 0.6%. We do not find a significant impact on hours worked in the uncovered sector. Finally, we show that despite the wide range of minimum wages, the largest impact on the employment of covered sector workers is in the lower half of the skill distribution.     

Gender Pay Gap in Poland

In this paper we examine the gender pay gap in Poland over 1987–1996, i.e., shortly before and during the transition to market economy. The principle source of data used throughout the paper is the Household Budget Survey conducted by the Polish Central Statistical Office. The study documents three major results. First, the transition to market economy in Poland favored women substantially in terms of relative earnings differentials. The gender pay gap decreased by 10.2 log% points and the position of mean female in male wage distribution went up by 9.9 percentiles over 1987–1996. By 1995, the values of these measures reached the level observed in industrial economies such as the U.K., Austria, Italy or Australia. Second, rising relative skills of women and rising returns to skills explain about half of the fall in the gender pay gap over 1987–1996. Third, the pay gap did not follow a smooth adjustment process. 1989, the year of the first democratic parliamentary elections, which resulted in forming the first non-communist government, saw the most spectacular change, although actual market reforms began one year after. The changes in the early phase of the transition were mostly driven by sudden shifts in relative wages and employment across industries. Afterwards, the pay gap measures stabilized, partly because rising overall wage inequalities offset the advantages of females due to observed skills. This revised version was published online in August 2006 with corrections to the Cover Date.     

Great expectations: Past wages and unemployment durations

Decomposing wages into worker and firm wage components, we find that firm-fixed components are sizeable parts of workers' wages. If workers can only imperfectly observe the extent of firm-fixed components in their wages, they might be misled about the overall wage distribution. Such misperceptions may lead to unjustified high reservation wages, resulting in overly long unemployment durations. We examine the influence of previous wages on unemployment durations for workers after exogenous lay-offs and, using Austrian administrative data, we find that younger workers are, in fact, unemployed longer if they profited from high firm-fixed components in the past. We interpret our findings as evidence for overconfidence generated by imperfectly observed productivity.